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In today’s world it's better to start off kids early on money management. Habits learned early on, will form the basis for a lifetime of responsible finances. With ample credit facilities and enough of glittering objects to spend the money on, the sooner kids learn about how to correctly use money, the better it is.

The best way to start is by starting them on a fixed allowance. The key to a successful allowance is structuring it right from the outset. Make it clear to your child what kind of expenditure the money is for, and that they are expected to save some of it. Younger children -- ages 7-10 -- shouldn't be held accountable for items like school lunch money as part of their allowance, but it's not a bad idea for older kids, and has the added benefit of fewer payments changing hands.

When your child asks for a raise in his or her allowance, use this as an opportunity to teach economic values. Instead of grimacing when your child hits you up for a raise, decide when the time is right, and then engage them in fruitful negotiations. How long since the last raise? Will new expenditure be covered? What amount of the raise will be saved long-term for expenditure requiring your approval? The most vexing decision on allowances is how much -- a decision affected by personal values, family income, and common sense. Don't let your child influence the amount by saying what they're friends are getting: Any normal child will bring in high figures.

One way to encourage your child to develop sound money discipline is to make savings a condition of their allowance, so try to account for this when deciding on a weekly or monthly figure. This, of course, means setting a budget -- no easy task for people of any age. Kids' budgets will vary widely with their needs and circumstances. The challenge is what to do when children run afoul of their own guidelines and end up dipping into savings illegitimately. One answer is to require them to save their allowance in a locked box so that each deposit is irretrievable.

The younger your child, the more limited his or her concept of time. As a result, younger children aren't apt to realize the necessity of long-term savings. Indeed, for a six-year-old, long-term could mean spending the savings this weekend. Yet other children the same age tend to have an intuitive grasp of savings for savings' sake. If they've been receiving your sage financial teachings from an early age, older children shouldn't have trouble understanding the concepts of long-term and short-term saving. If not, illustrate the concepts by using goals, as with a new video game a month from now versus a bicycle this summer, or college when they are 18. Remind of them of these goals to keep them from straying. The more worthy and ambitious the long-term goal, the more you may want to consider matching grants to reward your child's savings discipline. These grants can be anywhere from 1.25-to-1 to 3- or 4-to-1, depending on the goal and your means. Matching grants are a great way to save for large items like computers, or even a first car.

Once children reach the age of 9 or 10, they're more amenable to banks. Quantitatively adept children of this age can understand the concept of interest rates, especially when you demonstrate with coins to show how their money will grow. Until they're old enough to handle a checking account, children may take withdrawals as cashier's checks or money orders. The best way to encourage sound spending habits is to exhibit them. When planning a trip to the grocery or discount store, get your children involved in making a judicious list and sticking to it. This will teach them to avoid the bane of all savers: impulse buying.  With credit-card offers coming as fast as keg party invitations, most teenagers need some guidance. Before your kids acquire their first credit cards, they need a lesson in the evils of plastic. Tell them that this is where most individuals' finances go seriously awry, and illustrate your point with interest tables that show the damage that 18 percent annual interest, compounded over the years, can do to their savings potential. Also, tell them that credit is a privilege, not a right, and that if they abuse it, they will lose their ability to get more.

After setting up rigid criteria for the use of a credit card, start them off with training wheels in the form of a secured card -- in which the holder charges only up to a cash account kept with the issuer. This way, they become accustomed to using the card judiciously without getting in hock. If their purchases are sound enough, then move on to an ordinary credit card, encouraging them to pay the balance each month to avoid interest charges.

Once your teenagers get a grip on credit, introduce them to the flip side -- investing. After all, that's when they extend the credit and collect the interest. Since your teens may have too much money collecting no interest in a checking account and probably write few checks, the best way to start is with a savings account on which they can write checks. From there, introduce them to simple, set-term investments like savings bonds and certificates of deposit. Though returns from these will be meager in today's market, they serve an important lesson and will build their confidence about investing. From there, introduce them to the stock market, but not as a prelude to picking stocks. Instead, advise them to get into some diversified mutual funds or a solid index fund.

Aru Srivastava

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