TheBakersfieldCalifornian.com

Like most parents, I'm always looking for ways to teach my kids important life lessons in a way that they can easily understand. One such lesson I work hard to impart is the importance and value of money. A good way -- actually one of the best -- to help children learn that dollars don't just grow on trees and credit cards aren't magic pieces of plastic is to start giving them an allowance at an early age.

The goal isn't to give them enough cash to buy whatever they want. Instead, use the allowance as a tool to educate them on money management. Let them have enough freedom to make small money decisions on their own now -- while they can do so with little to no risk of long-term consequences.

How to give an allowance

A great way to implement an allowance with your children is to set a base allowance that each child gets each week. This is money that they get just for being part of the family. It may or may not be tied to their normal chores, like clearing the dinner table.

Some parents choose to pay their kids' allowance in cash so they can see and feel the money they are getting, while others deposit it to a savings account. Some require their children to save a portion of the money to use in the future -- perhaps when they turn 18 and move out on their own. Having an account also helps you teach them that they can earn interest on their funds and end up richer later just by not touching that money. Most financial institutions offer special accounts for youth and teens, which can provide an extra incentive.

So, how much?

Set guidelines as to what items you will pay for them and what they will now have to pay with their allowance. For instance, you will pay for their movie tickets but they have to pay for popcorn if they want it. This will also give you an idea of how much your child will need based on what they will now be responsible to pay for.

One good rule of thumb is to adjust the allowance amount in relation to each child's age. If you decide on 50 cents per year of age, to a 6-year-old, $3 a week would be great and should be a fair amount. To a 12-year-old, who may not be old enough to work but would like to go to a movie with friends on Friday, $6 a week may be more appropriate. Also, a set amount per year of age makes it simple for you to explain to kids why one sibling makes more than another.

This base allowance amount should be just enough to let them experience the consequences of saving and spending and the benefits using a simple budget. For example, if they want to buy something pricey, like a brand new video game, it's a good idea to make it necessary for them to save up for a month or so to get it. Kids should know that in order to get one thing they really want they may have to sacrifice something else that's less important, like buying a candy bar at lunch. Let them know that you have to do the same thing; you don't spend the weekly grocery money on a tropical vacation.

Bonus payments

An allowance can teach the benefits of working if you tie the money to completing chores outside of the regular routine. For example, if they vacuum the living room they can make an extra 25 cents; if they wash your car they can get an extra $5. Other income boosting tasks can include babysitting, mowing the lawn, watering plants, or even picking up toys (if your child is very young). This instills the idea that hard work and determination can pay off.

Keep the learning going

In giving an allowance to your children, don't just pay it and forget it, like a lot of parents do. This can lead to your kids feeling entitled to the money instead of realizing that it has to be earned and managed. If your children are elementary age or older, set up a simple budgeting worksheet so that they can track their intake and outgo. All you need is a spreadsheet with two columns -- one for income and one for expenses. Encourage them to keep receipts for purchases they make so that they can "take stock" at the end of each month. It's easy to forget what you spend and where you spend it.

However, do not be too controlling about how they spend. Let them blow that $30 on that pink tank top that will be out of style in two seconds. They will realize later that they wasted money they could have spent on something else.

Don't forget to allow them to make mistakes. Now is the time to do it, instead of when they're looking to rent that first apartment or buy a car. It is through those mistakes that they will truly learn the benefits of handling money responsibly, and you are probably the most important teacher they will ever have.

Paul Anderson is an investment advisor and partner at Moneywise Wealth Management. He is also a host of the Moneywise Guys radio program on KERN 1180 weekdays 10 a.m. to noon. His website is www.MoneywiseGuys.com. Advisory Services offered through: SCF Investment Advisors, Inc. Corporate Office: 155 E. Shaw Ave. #102 Fresno, CA. 93710 800-955-2517. These are Anderson's opinions, not necessarily those of The Californian or SCF.