What kids need to know about money

By Melinda Fulmer

Most of the lessons I learned about money were gained the hard way: by bouncing checks and accumulating thousands in credit card debt in college.

Now that I'm a parent, I don't want my kids to make those same kinds of mistakes -- or ask me for the kind of bailouts I asked my parents for. (Sorry, Mom and Dad. I'll spring for that cruise next year, OK?)

So how do we turn our kids into fiscally responsible individuals? Here are ideas for teaching them and what experts say kids should know about money at each age:

Ages 3-5

Kids this age don't have a real idea of what things are worth, says Janet Bodnar, the deputy editor of Kiplinger's Personal Finance and author of "Raising Money Smart Kids." Most think anything that's bigger must be worth more. That's why they'll choose a nickel over a dime nearly every time. But they can learn that money buys them food and toys.

Teach the value of coins: Once kids can count, they can begin to learn the difference between pennies, nickels and quarters.

• Let them pay. Have your kids put money in a vending machine or pay the ice cream man, Bodnar says.

• Make a game of it. Hide pennies, nickels or dimes, and have kids find them and tally the total. Or play store with your kids, using coins to pay for things.

Distinguish wants from needs: Tell them that food, water, shelter and the clothes on their backs are the only things they need to survive. That package of Silly Putty? It doesn't even rank.

• Talk back: Should schools teach personal finance?

Make them prioritize: If they use their birthday money to buy candy and rubber lizards, they won't have it for a new Buzz Lightyear action figure. That's how they learn to hold out for the things that are important to them -- not the junk that beckons at store checkout counters. (See "Can you cure your kids' 'gimmes'?")

They need to know "nobody has unlimited resources," says Jayne Pearl, the author of "Kids and Money: Giving Them the Savvy to Succeed Financially."

Ages 6-7

Encourage them to save: Once kids are in first grade and learning about money at school, it's time to start teaching them about saving, says Sam Renick, a financial educator who visits schools with his sidekick, Sammy the Rabbit.

• Use simple messages. Renick and Sammy teach kids that from every dollar they should save a dime -- and that saving makes them strong and prepares them for things they really want to buy.

• Read books to them. Librarian and teacher Monica Hoagland, posting on MSN Money's message boards, recommends "One Grain of Rice" by Demi and "Alexander, Who Used to Be Rich Last Sunday" by Judith Viorst.

• Make saving a family motto. Renick's example: "Whenever the (insert name here) family gets money, we save and spend smartly."

Start allowances: Kids at this age are happy to spend unlimited amounts of your moola. When they know those toy cars or rainbow barrettes are coming out of their own money, they're more inclined to be selective, Bodnar says. Think of this as Budgeting 101.

• Some experts suggest starting with weekly allowances that are half of kids' ages, such as $3 for a 6-year-old. (For more ideas, see "Should your kids get an allowance?")

• Many financial experts think chores are something that kids should be expected to do regardless of whether they're paid. Instead, you can assign kids additional chores to earn money, which teaches the concept of working for pay. Just keep the compensation realistic, urges MSN Money reader "Artemis": "One of my grandsons was paid big money from his Dad when he helped on various work projects. This grandson came to think that everyone needed to overpay him."

Continued: Ages 8-9

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