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Kids And Money

Open communication about money issues can help kids understand the current recession. Stephanie AuWerter, Contributing Editor for SmartMoney.com, has some talking points.

First, don't make money a taboo topic. Talk about it with your kids openly. "Your kids are hearing about the current economy," says AuWerter. "They're hearing about it in school. They may have friends whose parents have lost their jobs." Keep the discussion age appropriate - don't bore a five-year-old with details of how the stock market works. Answer any questions they may have and keep the discussion open. If something comes up later that worries them, be willing to discuss it.

You'll also need to teach your kids how to spend money wisely. One step you can take is to pay with cash only. Kids can have difficulty understanding money because today, much of our banking is done online and through debit or credit cards. By paying with cash, you teach your children that credit cards aren't for everyday purchases and should be saved for when they are most needed. "If you have a very small child, you can have them hand over the money to the teller and take back the change," says AuWerter.

When they get a little older, start giving your kids allowances. AuWerter suggests giving one dollar per year in age. So, your ten year-old would get an allowance of $10 per week. Even kindergarteners, though, can understand the concept of having their own money. Let your kids spend their money on what they want, within reason. Another strategy? "Pay your kids a base allowance and then give your kids an opportunity to earn additional dollars by doing chores around the house," says AuWerter.

Once your child is old enough to get a part-time job, however, it may be time to look into a "company match". Just like you may have a company match for your 401k contributions, you might consider offering to match your child's part-time earnings. Instead of giving that money to your son or daughter, though, help them invest it. "Investing in today's market is going to deliver some very hard lessons, but it can still be a good idea to open up a brokerage account to get them investing in CD's, bonds and cash equivalent," says AuWerter. You don't have to invest a lot of money: just enough to show them how investments can take off or fail.

Finally, be sure to practice what you preach. You can tell your kids to be wise with money, but if you're constantly fretting over bills or buying designer items that you can't afford, it's sending the wrong message. "You really need to think about what kinds of values you'd like your kids to have financially," says AuWerter.

For more information on talking to kids about money, as well as additional personal financial advice, click here to visit www.SmartMoney.com.

By Erin Petrun

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