Step 7: Start an Earnings-Based Allowance

An allowance is a great teaching tool if it is based on your child completing chores and tasks. You don’t have to break child labor laws to find great ways to help your kids earn their allowance rather than just have it handed over to them. A well-implemented allowance program can mimic many money matters that adults face every day throughout their lives. From recognizing the need to earn money to learning how to responsibly and intelligently spend, save, and invest their allowance, children can gain a solid financial footing starting at a young age. This will save them quite a bit of financial pain in the future.

Step 8: Start Them Saving and Investing Early

It’s never too early to start saving, and the sooner you can instill the importance of saving money into your kids the better. After they start earning an allowance, have your kids save a significant portion (up to half) of their allowance money toward longer-term goals, such as college (just be careful about putting money in children’s names as doing so can harm college financial aid awards). Reserve about one-third of their weekly take for savings. As they accumulate more significant savings over time, you can introduce the concept of investing.

Step 9: Reduce Their Exposure to Ads

The primary path to reduced exposure to ads is to cut down on TV time. When kids are in front of the tube, have them watch prerecorded material. You can direct the television viewing of younger children, in particular, toward videos and DVDs. And for older kids, if you use digital video recorders (DVRs), such as TIVO, or streaming services such as Hulu and Netflix, you can easily eliminate ads. But when an ad does sneak under the radar and sets the kids to begging, address it. Explain to your kids that there’s never a good time for frivolous impulse spending—but it’s especially harmful when money is tight.

Step 10: Teach Them How to Shop Wisely

Family shopping trips, whether for groceries or something else, are likely to be your kids’ first encounter with spending. They’ll see you make decisions based on what the family needs, maybe see the occasional coupon used, and will observe how you pay. These trips are a great time to teach them lessons about money and the value of product research and comparison shopping.

Step 11: Introduce the Right and Wrong Ways to Use Credit and Debit Cards

Those plastic cards in your wallet offer a convenient way to conduct purchases in stores, by phone, and over the Internet. Unfortunately, credit cards offer temptation for overspending and carrying debt from month to month. Teach your kids the difference between a credit and debit card, explaining that debit cards are connected to your checking account and thus prevent you from overspending as you can on a credit card. Make credit card usage the exception, not the rule.

Step 12: Encourage Older Kids to Get a Job

An allowance doesn’t have to be the only way for your kids to earn money. Your child’s initial exposure to the work-for-pay world can start with something as simple as a lemonade stand. Depending on age, he or she might do yard work for neighbors or offer babysitting services. Whatever they pursue, teach them to go the extra mile. For example, if your child is babysitting for a family, teach them to go the extra mile by vacuuming or cleaning up the kitchen, even though they were not expected to. This is how you build a reputation of reliability and obtain strong referrals.