Money lessons to teach your kids.

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Author: Whitaker, Barbara

It's a little scary to hand cold, hard cash over to your children. But "kids won't learn to manage money unless they have it in their possession," says Cindy Morus, a money-management coach in Hood River, Oregon, and the mother of two teens.

Kids as young as eight, says Morus, can handle a small allowance each week, usually a dollar or two for incidentals or for the piggy bank.

As your children hit the tween years, that amount can increase to $10 or more. Now your kids may be able to use their allowance for some of the expenses you would usually handle, such as gifts or art supplies. Shannon Contreras, a mother of four in Duncan, Oklahoma, recently added another $5 a week to her 11-year-old son's $5 allowance to pay for snacks and drinks offered during school lunch.

High schoolers may be able to handle lump sums beyond their allowance to purchase big-ticket items such as back-to-school clothes. They may even be ready to use a debit card or other alternative to cash (see "Is Your Kid Ready for Plastic?" below).

Just how much money your tween or teen can handle depends partly on his maturity level. But every child is bound to be more successful if he learns how to budget and prioritize.

Have your kid write down everything he spends during a week or a month, advises Amy Willis, executive director of the Arizona Council on Economic Education. That way, he'll begin to see just how much he may be frittering away on junk food and music downloads.

To motivate your child, get him a special notebook or an actual check register for logging purchases. Alternatively, you can set up Quicken or another financial program on the computer.

Point out what your child may be missing. The $2 your daughter spends twice a week on ice cream could add up to enough to buy that skirt she's desperate for. And it's OK to let her make a mistake or two. Mary Shackleford of Lexington, Oklahoma, remembers when her ten-year-old daughter, Skye, wanted a Lord of the Rings battery-operated sword. But rather than save up for it, Skye spent her allowance on miniature dolls. Later, the sword went on sale, and Skye would have had enough to buy it. "Now my daughter weighs her options more carefully," says Shackleford.

There's a lot you can do to help even the most self-indulgent children.

* Make saving a condition of their allowance. Peg Manochi, a mother in Haddonfield, New Jersey, requires her 12- and 16-year-old daughters to save half of their allowance each week. "My husband and I tell our kids what it takes to make money, what things cost, and why it's important to save," Manochi says. "Now that they've started, they like the idea of having a nest egg."

* Introduce the magic of compounding. Make sure the savings earns interest. Even today's low rates add up over time. To get that point across to my own daughter, I surfed the Web with her in search of those nifty compound interest charts. Just $5 a week, saved at 3 percent interest, would add up to more than $3,000 in ten years.

* Offer matching funds. If you can, volunteer to match a percentage (or the full amount) of what your child saves, and deposit the sum directly in his account. Cindy Morus, the money adviser in Oregon, has been doing this for years. "Believe me, that has made my kids a lot more interested in putting money away," says Morus.

$169 billion Amount of money kids ages 12 through 19 spend each year

• 74% Percentage of teens with savings accounts
• 31% Percentage of teens with checking accounts
• 11% Percentage of teens who are carrying credit cards

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By Barbara Whitaker