DIY Network

Teaching Your Kids About Money It's never too early to start educating your children about managing money. From "Home Made Easy" episode DHME-128

Matthew Heimer, Senior Editor of Smart Money Magazine joins host Stephanie Lydecker and outlines the essentials on how to talk to your kids about money and why it's important.

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Matt shows you the money when it comes to discussing financial responsibility with your children.

Teaching Your Kids About Money: Start at an Early Age

• When your kids are very young, show them money like coins and dollars.

• Encourage them to put away small change in a piggy bank.

• Have the kids make small purchases for you at the store to have some experience with paying for something.

• If you go to a restaurant, have them help you figure out the top and explain why it is important.

• If your child is interested in something to buy, get them interested in the process of buying it: saving for it, comparison shopping, watching for sales and special offers. Teach them the value of saving for a big purchase instead of a little purchase.

• When kids talk about their fantasy careers, get them interested in the financial side of it. So you want to be a firefighter? Find out how much it pays. You want to be a doctor? Explain the costs of attending medical school, and the fact that doctors often run their own businesses.

Allowing Allowance

• For starters, make your rules around allowance every clear. Let your kids know exactly how much they will get each week, when they will get it, and whether they will have to do chores or other work in order to receive it.

• Two dollars a week is a good amount for younger children and $10-$15 a week is reasonable for older children or teens.

• You should get some guidelines for the kids about what the allowance is for . Is it all "fun money" or are they expected to save it? With older kids, will you want them to use it for bigger ticket necessities like school clothes? If so, of course, you might want to make it bigger.

• Just as important, make sure your kids know what their allowance isn't connected to. For example, don't withhold it as punishment—you don't want your kids to connect money with love. And don't connect it to higher grades—you want the kids to pursue accomplishment for its own sake.

Earning the Money

• You can start at home by having younger kids do extra chores around the house to make a few extra bucks. A little child can set up a lemonade stand. It may sound hokey, but it's a great way to teach kids about the cost of running a business.

• Teenagers should be encouraged to get after school jobs. Having their own sources of income will give them a better sense of the connection between wealth and work. Working can also improve self-esteem and gives teens a sense of what it's like to take pride in their work. Part-time jobs look good on college applications, too. Just make sure that their jobs don't take too many hours away from their studies—10 to 12 hours a week should be about the maximum during the school year. But full time summer jobs are okay—they also give kids an opportunity to build up savings for college expenses.

Family

• Most people learn about money management from their families. So parents need to set a good example. Fortunately there are lots of ways to do this. Most important is discussing day-to-day financial stuff with kids. Make a family budge and stick to it. If a family needs to make a big purchase explain that this may mean giving up some other things. When you go shopping, establish spending limits for their clothes and shoes. If they want something more expensive, encourage them to kick in their own "saved" money for it. Avoid making arbitrary impulse buys of your own. You should also encourage them to set up their own savings account by age 10. Don't be afraid of talking about money. Not talking about money sets a bad precedent for your kids' future relationships. Money problems are one of the biggest factors in the break up of marriages, and not communicating usually aggravates such problems.

Credit Cards and Kids

• The concept of borrowing is something that kids can learn from an early age. They can borrow from future allowances after they have saved for half the amount of the toy that they want. But then, of course, when those future allowances are smaller, they will have a sense that borrowing has a real cost. Above all, you have to explain that paying for something with a credit car doesn't mean getting it for free. Not only will you owe that money in the future, but you will actually owe MORE money, because of interest charges. One way to introduce kids to credit is with "secured" cards, which can be either debit cards or credit cards with low spending limit.