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The lesson parents can take away from these tough economic times: the huge value of making educated choices when managing their money. And it has never been more important for kids to learn finance basics, too. But schools don't usually teach these skills, so it's a job that's largely left up to you. Here are some ways to show your kids the ropes -- and make a big investment in their future.Set Up a Payroll
Giving your kids a consistent allowance will help them learn how to manage a cash flow. First choose an amount you can sustain over time: One easy system is to pay a dollar per year of age, so a 13-year-old, for instance, would get $13. Don't combine chores and allowance or you may wind up nitpicking every line item. Instead, let children know that they're getting an allowance because they are part of the family team -- and they are expected to do their chores as teamwork. If they don't fulfill their responsibilities, consider taking away privileges, not cash. It's okay to pay a bonus for extra chores (like cleaning the garage or doing the laundry for a week), which can be a great incentive.Show Them the Basics
Before your teen starts making her own money -- be it babysitting cash or a check from a "real" job -- make sure she has the tools to handle it. Start by helping her open a savings account. Some banks have student account programs; such accounts don't normally have fees even if she carries a low balance. If your bank doesn't offer this type of program, open a joint account with your child. Ask for an ATM card, which she can use to access her cash (it can't be used like a credit or debit card). If you have an older teen who's mature and responsible, you can put her on your credit card account and give her a card in her name for emergencies or purchases you preapprove. It's a good way to help your teen build her credit.
When your teen does start earning, teach him to funnel at least 10 percent of every paycheck automatically into his savings account. You can even start your own version of a 401(k) plan: Let him know that you'll match each dollar he saves with a dollar of your own (or whatever amount you can afford). He'll soon learn that the more he saves, the quicker his money adds up. Or go old school: Even stashing coins in a piggy bank will help him see that spare change adds up to real cash. If your tween or teen has plans for a new laptop or a gaming system, help him learn how to save for that big goal now. Teach him to calculate how much he has to save every month to pay for the purchase -- it'll be eye-opening.Learn to Spend Wisely
When a big family purchase is looming, head to sites like Amazon or Epinions to read reviews and check online prices. Showing kids how to get the best value will carry over to their own spending decisions, whether it's for new jeans or an MP3 player. It's also important to demonstrate wants versus needs. It seems so simple, but how many adults do you know who are living beyond their means and carrying tons of debt? A new water heater is way less exciting than a week at Disney, but showing your kids that you have to make tough decisions (and involving them in those choices) will help them learn this crucial lesson now. And if your child has already had a money mishap, don't get angry. Walk her through the steps she can take to rectify it.Do Some Extra Credit
After your kids have the basics down, tackle advanced concepts like budgets, credit, and investing. Use real-life examples when you can: Show them your actual family budget or pull out Monopoly money to give visuals on how credit card debt can get out of control and how interest really adds up. Make it fun and hands-on to keep them from zoning out. Play games like Charge Large (a board game where the goal is to end up with no debt), start a simple family business like selling garage-sale finds on eBay, or bring savings to life by adding up how much you save when you make burgers together at home instead of eating out.
"Our 12-year-old daughter gets $21 a month for her allowance: $7 goes to our church, $7 goes into a savings account and the final $7 is hers to spend however she wants. My parents did the same thing for me -- and I had about $1,200 to open a checking account when I was old enough!"
- Laura Amon, Coconut Creek, Florida
"We try to outdo ourselves by saving as much as possible every time we shop at the supermarket. I've taught my boys to always choose the item that's on sale -- but only when it's on our shopping list. When we check out, we always read the receipt to find out how much we've saved."
- Jen Singer, Kinnelon, New Jersey
"One good lesson is to compare what it means to be rich in different countries. I showed my kids an article where a girl says that her ballpoint pen is her most precious possession -- she saved up for months to buy it. It gave them a whole new perspective on the value of money."
- Beth Revis, Union Mills, North Carolina
Originally published in Ladies' Home Journal, February 2010.