8. Use cash.

Especially with young children, it is essential to use cash and avoid credit or debit cards. They need tangible, visual experiences with money to truly understand the "exchange." Not only will it help your child's numeric skills, but it will also prepare them more effectively to use debit and credit cards in a responsible manner.

9. Provide a "mini" allowance.

At around age five or six, parents should give a small amount of money to their children each week (about $1 per year of age a week) so they can learn to manage it. If they want to earn more to buy something specific, they need to work to earn the extra money. This method encourages hard work, responsibility and goal setting, while also ensuring the child gets consistent practice managing money each week. However, specific expectations must be set so children know what the allowance must cover and what it doesn't.

10. Divide all Income into categories: give, invest, save, spend (GISS).

The GISS Method of Money Management teaches the different ways money can be used and is one of the most powerful wealth building habits a child can develop. It is simple, hands-on, effective and encourages good financial habits. Children should give 10 percent of their money to worthy causes or organizations, which encourages them to be thoughtful and kind, and also allows them to feel a sense of empowerment and self-esteem. They should invest 15 percent to understand the importance of growing your funds in order to save for the long-term future. They should save 25 percent for more expensive items that they have set goals to achieve, which helps develop self-control. Finally, children should spend 50% of their money, which allows them to consider the cost and value of things, as well as learn that their actions have consequences.

11. Avoid the nine mistakes parents often make.

    Assuming someone else will teach your child about money.
    Consistently talking negatively about money or not talking about finances at all.
    Assuming you have to be a mathematical genius or investment wizard to teach your kids great financial skills.
    Teaching children how to only be spenders.
    Making mindless, unplanned purchases.
    Overindulging children with goods and "stuff."
    Getting upset at a child's decision and not identifying the lesson within the mistake.
    Giving stock "Yes" or "No" answers to save time.
    Going to the mall as a regular pastime.

Finally, be sure to communicate to your clients this simple lesson:  "Children are always watching and learning. Consider the values you are communicating before you open your wallet."

J. William G. Chettle is chief marketing officer for Loring Ward, which provides turnkey asset management services and practice management support to financial advisors. Nancy Phillip is founder and president of DollarSmartKids Enterprises. For The Parents Guide to Kids and Money, visit www.loringward.com.  


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