What kids need to know about money

Ages 8-9

By now, your kids probably have some birthday and chore money accumulated. Give them a place to stash it and begin showing them how to save for the long term.

Teach them how a bank works: Take your kids to a bank to open savings accounts. Show them how to record their deposits and withdrawals in a check register and how to balance them against their statements.

Encourage longer-term saving: "Kids who have a purpose do better and make fewer poor spending choices," Renick says.

• Plan a big purchase. Sit down with your kids and help them choose something they'd love to have, whether it's a bike, a deluxe set of trading cards or an MP3 player. Then come up with a plan to save for it.

• Set up a family 401(k) plan. Offer to match what your kids save as an incentive to reach their long-term saving goals.

Make saving a habit: Don't force your kids to save a certain amount, experts advise. You want to give them a sense of control over their own money. But you can set a rule that some portion of their money -- no matter how small -- must be saved, Renick said.

• Divvy up the money three ways. Some experts recommend having kids divide their allowances into three portions: spending, saving and charitable giving. This teaches them that money is for more than blowing each week.

• Start a family savings jar. Renick likes the idea of a family savings kitty. He recommends setting up a 5- or 10-gallon water bottle that all family members put change in to meet a specific goal, such as taking a trip to an amusement park or buying a piece of play equipment.

Ages 10-13

When children reach the preteen years, it's time to start increasing their allowances and their financial responsibilities. Kids this age can pay for their own movies, video games and after-school french fries. They shouldn't hit you up for 20 bucks every time they go to the mall, Bodnar says.

Put them in charge of their clothes: As her son's demands for $50 Abercrombie jeans increased (while she pushed $25 Old Navy jeans), MSN Money reader "J" began giving him $75 each month for clothes. "I knew it was working when I saw him debate between two pairs of black shorts and pick one because it was cheaper," says the 48-year-old Ohio administrative assistant.

Teach the basics of the stock market: If you are an investor, Bodnar says, you can now introduce your kids to the stock market, teaching them that owning stock means being a part owner of a company. Sharebuilder.com allows small purchases of stock with commissions as low as $4, and Mystockdirect.com links to more than 100 companies that sell directly to the public. Also check out MSN Money's New Investor Center.

Ages 14-15

Encourage a part-time job: Earning their own money from someone other than their parents teaches kids responsibility and the effort that goes into each paycheck, including yours. Even if it's just four to 10 hours a week, or a summer job when the academic pressure is off, Bodnar says, this experience is invaluable.

Increase their share of costs: At this age, concerts, gifts for friends and those cell phones they're clamoring for -- including a portion of the bills and any overages -- should all come out of their own allowances or other earned money. (See "Does Johnny really need a cell phone?" and "Allowance breakdown: How kids are spending.")

Renick suggests making them keepers of their weekly lunch money, too. Dole it out at the beginning of the week. And encourage frugality: If they instead make and bring their own sandwiches, let them pocket the difference.

Stick with cash: Some banks try to persuade parents to spring for a prepaid debit card to distribute allowance. Even the game Monopoly these days is played with debit cards, Kristin Garrett, a credit counseling employee, notes on MSN Money's message boards. But plastic isn't as real as cash, so stick with checks and cash for now. Bring your kids to the bank to make their deposits.

Continued: Age 16 through college

< previous |  1 | 2 | 3 | next >