Teach Your Children the Value of Money

Even if you are a successful physician who can give their kids the moon, it's important that they learn money skills themselves. The only way to do this is to give them realistic amounts of their own money to handle. That usually comes in the form of a weekly allowance. Encourage them to spend their own allowance on some items, so they'll understand the value of money, and to save a portion of it.

Mold Money-Savvy Minds

It's important to develop your child's respect for money progressively throughout the years. Here is the Dolan plan for teaching money smarts at each stage of development:

• Ages 4 to 5—Start giving them pocket change. Let them spend their own money on gum or candy. Explain to them that if you buy the candy bar with this dollar, you will get back this amount.

• Ages 6 to 8—On the very first day of first grade, establish an allowance to begin teaching the concepts of saving, budgeting, and spending skills. Give a weekly unconditional allowance. The main purpose here is to learn how to manage money, so don't withhold allowance as a punishment.

When your child reaches age 8, we recommend buying them one share of stock in a highly visible company. You can show your child how to follow the stock in the newspaper. This will give them an opportunity to see how supply and demand can boost share prices.

• Ages 9 to 10—Teach kids about advertising, marketing ploys, and pricing premiums. Tell them that if you get one "free" when you buy one extra, it isn't necessarily the best deal. Let them spend time with you while you are writing out checks for your bills. Reinforce the notion that the bills must be paid on time and that there is a penalty if you're late. These are the ages when your children should set up their own savings accounts with the money they are ideally putting aside. This is a good time to explain to them how interest works by showing them the banking statement.

• Ages 12 to 13—Teach them about risk and reward. Have your child pick a stock in a company they like and tell them that by owning shares of stock, they own a piece of the company. This will teach them about the ups and downs of the market. Point out that by owning more, they can make more if the company does well, but also lose more if the company does poorly.

• Ages 14 to 15—This is a good time for them to obtain a part-time job, taking on a new responsibility.

Another option:

• Ages 16 to 18—Get them a credit card. Make sure there's a $500 limit. Tell them they have to get authorization from you before they make charges. Have the credit card issuer send duplicate bills, one copy to your teenager and one to you, so that you can track the charges and payments. Have your child open a student checking account. This will teach your child to maintain and balance a checkbook.

Structure an Allowance

A good rule of thumb:

How much allowance should you give a child? That depends on how much you can afford and what things cost where you live. Give enough allowance for your child to be able to buy a few candy bars or a toy without having to hoard for weeks, but not so much that they'll be able to buy every video game the minute it hits the store. The following are some Dolans' do's and don'ts to bear in mind when it comes to doling out an allowance:

• Talk with your child about their allowance. Discuss with them how much allowance you'll be paying and what the money must cover. It's okay to include enough money so your child pays for school lunches and Scout dues from their allowance, but be sure to include a discretionary sum, too. Cash that they can use any way they want is a real learning tool.

Avoid setting narrow allowance rules. Let your child decide how to spend their allowance and make their own mistakes. Your child's early experience with managing money will teach unforgettable lessons.

• Review your child's allowance annually. Try to keep the allowance in line with changing needs and costs. Gradually give your child a larger allowance and a more lenient reign on spending.

Adapted from Don't Mess with My Money by Ken and Daria Dolan, copyright 2003. Reprinted with permission from Currency/Doubleday Books.

Ken and Daria Dolan are the hosts of The Dolans, the nation's number-one-rated personal finance show, which originates from WOR-AM in New York. For 4 years, they served as money editors on CBS This Morning and CBS News Saturday Morning. They also previously hosted their own popular personal finance show on CNBC and have appeared on many other television shows, including The Today Show.