Raising Financially Fit Kids

With consumer debt at record highs, teaching your kids money-management skills at an early age is essential for healthy spending and saving habits in their adult lives. Age-appropriate money lessons at home can give your kids a head start on learning the value of the dollar, how to save and budget, and how to spend wisely.

Model Good Behavior

According to the American Savings Education Council, parents' spending habits can greatly impact their children's behavior. Ninety-four percent of youths view their parents as the primary role model for their own financial management. To teach children money basics, begin by setting a good example: Keep your own debt to a minimum, create a family budget, and maintain a savings plan that works for you.

Smart Money Lessons for Every Age

In addition to setting a good example, being involved in your child's financial literacy can help them avoid many common financial pitfalls. Every stage of your child's life offers an opportunity to learn valuable skills and strategies that can last a lifetime:

Ages 2 to 4: Toddlers and preschool-age children love playing with coins and money. This is the perfect time to help your child identify cash and coin values; learn about money exchange by "buying and selling" fake food or toys in the home; and save for a special toy or item, such as stickers, with a piggy bank savings account. Use a clear piggy bank so your child can get a visual of their growing savings.

Ages 5 to 7: When children start school, it's a good time to begin a weekly allowance. Once they have some discretionary money, they can make their own spending choices—and spending consequences. To teach your children the difference between needs and wants, designate a percentage of their allowance toward things they would normally need, like paper or pens for school, and a certain percentage toward things they want, like candy or a toy. You may also want to encourage your child to put a portion of their allowance toward savings, but, ultimately, it should be your child's decision on how the money is to be spent.

Ages 8 to 10: By this time, most kids can grasp the concept of how money is earned, where it goes, and how to save it. Let your child pay bills with you while you discuss your expenses such as mortgage, gas, water and electricity. Have them do odd jobs around the house or have a lemonade stand to earn extra money. Because your child is at an age to earn some of his own money, it's a good time to introduce goals and budgeting. Discuss your own family budget and encourage your child to put his own money into a no-fee savings account (at least 10 percent). Help your child calculate how much he or she will have to save each month for something special, such as a new bike or toy. Review his statements with him and be sure to point out any interest earned as an incentive to keep saving.

Ages 11 to 13: Consider raising your child's allowance at this age. Rather than weekly, give them their allowance every two weeks and eventually once a month, teaching them to slow their spending pace. Continue to discuss any interest earned, more particularly, compounding interest, which can teach the value of long-term savings. Many pre-teens can grasp stock market concepts and investment principles. By buying a few stocks in something that appeals to your child, such as Walt Disney Co., Build-a-Bear Workshop Inc. or World Wrestling Entertainment Inc., you can get your child interested in long-term market investing while having fun at the same time.

Ages 14 to 18: Real-world experiences are the best way for your teen to figure out how to manage their own finances. Having a job, such as babysitting or a retail position not only helps teach the value of the dollar, but also establishes the foundation for financial independence. Your child will have the chance to spend and invest on his or her own terms, manage his or her own checking account and debit card and possibly open a credit card. To introduce lending principles without opening a credit card, you may want to consider offering your child a loan for something your child wants now, like summer camp, but doesn't have enough time to save. Make sure to add a low interest rate to the principal balance to simulate a real personal loan and have your teen make the monthly payments.

If started early, financial education can help your child plan for the future and be in control of their finances as an adult.