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Here's a great way to give your children a huge head start in life: Teach them smart money habits.


You may feel a little uneasy about this parenting task. After all, you may not be all that confident about your own money-management skills. But you probably know more than you think you do, and you will play a critical role in shaping your children's attitude toward money.

When do you start? As soon as a child can count and begin to distinguish between coins, she's ready for her first financial strategy: Don't eat the money. Here's how to teach about money at each stage.

Toddlers and Preschoolers

At this age children can sort coins, learn their value and begin to understand how money gets converted into "things."

5- to 7-Year Olds

By the time they start school, many children are ready to receive an allowance. The goal is to give your child the opportunity to budget, spend and save his own money. Most experts agree an allowance should not be linked to chores or grades. Extra money for special jobs such as cleaning out the garage is fine.

The amount of the allowance depends on which expenses the child is expected to pay, so sit down with your child and map out a weekly or monthly budget. One suggestion is to pay 50 cents per week for each year of the child's age.

You can encourage saving by dividing the allowance among three jars. Money in jar 1 can be spent on whatever the child chooses. Jar 2 money is saved for a more expensive item, like a toy or book. Jar 3 is reserved for long-term savings, such as a college fund. Pay interest (even a few pennies at a time) to jar 3 money. Children are fascinated when money makes money.

8- to 10-Year-Olds

Make a trip to the bank to open a savings account. Let your child fill out the deposit slip, and explain that the bank will pay interest.

Set a good example Give your child a weekly allowance Set up a three-jar system to teach spending and saving habits Involve your children in family spending decisions Help older children choose a stock or mutual fund Set up a Roth IRA for children with earned income

Include your child in family discussions of finances, such as budgeting and planning for family vacations. Explaining how you decided to forgo the fancy sports car in exchange for a sedan and a family trip to the beach can teach about trade-offs and your family's values.

11- to 13-Year Olds

If your child shows interest in the stock market, choose a few stocks, such as McDonald's and Disney, and follow them for a few months. Stein Roe Young Investor mutual fund (1-800-338-2550) buys stocks of companies that produce products or services that children use. The fund sends workbooks, newsletters and other child-friendly materials.

If the child has earned income from a paper route or baby-sitting, for example, she can set up a Roth IRA that will accumulate a tax-free retirement nest egg. A $1,000 investment at age 12 can grow to over $150,000 at age 65.