This is a topic that has always intrigued me – how do I teach my kids the right lessons about Money Management? When do they start handling money independently? Let’s discuss a bit about the top few questions about Kids and Money in this post.

1. What’s the most important tool for teaching kids about Money Management? The answer is simple – It’s education. The best tool you can provide your kids is the knowledge that they’re getting things from life very easily – which their old man/woman did not. I admit that all of us want our kids to have the best in life and do not want to deny them the comforts of life, however, we need to stop going overboard.

As an example, a friend’s daughter who’s now going to the Third Grade in her school wanted a Nintendo DS. The reason was that everyone else in her class had one – and when the weather was bad outside, the teacher encouraged all the students to play with video games instead.

Now, in the above scenario, my suggestion would be to talk to the teacher and ask her to tell the students to read books from the library or work out in the school gym instead. How is playing video games everyday going to improve their lives? You might have your own view, but I believe that the idea of a teacher asking kids to buy video games is wrong.

2. When should kids start to have money of their own? I’d say – Right after they are born. I mean – it’s important for you to provide financial security to your kids, right? So as soon as you can, invest for them, their financial security and their education.

For example, when my friend had a son, as soon as the baby came home, my friend updated his pension, life insurance and retirement related accounts to reflect the baby as a beneficiary. Another friend buys a Savings Bond as a gift each year, on her kids birthday.

3. No seriously, I mean when can I provide my kids money to spend aka allowances? As soon as they can count is my opinion. One of the first things you will need to buy them is a Piggy Bank. All of their spare change must go in there. The larger monetary gifts (such as cash from Grandpa on the birthday) should go into their Savings Account that you control.

The earlier you start the better. We recently bought our daughter a doll that she really liked. She played with it for all of two weeks and the next time we were in the store, she wanted another toy. Fortunately, both my spouse and I were in sync and we instantly replied with a firm “No”. We did take the time out to explain to her that she wasn’t going to get everything she wanted – because there was a financial constraint on how many things she could buy in a month.

4. What’s the best way to teach kids to save and budget? This one’s easy. The best way to teach your kids to save and budget is By Example.

Think about it. Where are your kids learning their fundamental values in life from? Who teaches the kids what’s right and wrong? Who teaches the kids to be frugal. You do. So why should you not be teaching them to save and budget as well?

The best way to teach the kids to budget is by limiting their spending. Each month, every kid gets a certain “salary”. Out of the salary come their clothes, books, toys and so on. The salary must be carefully structured so that they have all their essentials, but need to save to pay for luxuries (such as a new Nintendo DS game, for example). As soon as the kid is old enough, he/she must be involved in their spending and encouraged to save.

One excellent trick to get the kids to save is to provide a “match” for their savings. A friend has an arrangement with his 10 year old so that at the end of the month, he pays her a dollar for every dollar that she saves from her allowance – up to a 100 dollars.

5. At what point should my kids be part of the family budget and goals? From their teens. Hopefully, if you have followed the practice of encouraging your kids to save and budget, by the time they reach their teens, they are responsible with money. This would be a good time to have them sit down and have their say in family finance matters.

For example, should we redo our deck first or buy that big screen TV for the family room right now? Decisions such as these would do with input from all the responsible members of the family.

Do you have more ideas, questions or thoughts? Please post them in the comments.