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Four Money Lessons for Children to Master

Sheyna Steiner, Bankrate.com

Like a fairy-tale curse, poor money skills can screw up your kids, their kids and their kids' kids.

Good money habits, on the other hand, can insulate kids from making major mistakes later in life and will positively impact their quality of life as adults.

To raise money-smart kids, parents should start at a young age and regularly reinforce money lessons as children grow up.

Unfortunately not all parents consciously try to foster money skills in their offspring. A recent survey by TrueCredit.com found that about 20 percent of parents, nearly one in five, had never spoken with their kids between the ages of 4 and 18 about money basics.

Unlike a birds-and-bees talk or don't-do-drugs speech, money skills must be taught to kids, experienced hands-on and consistently modeled by parents.

The alternative could cost kids a fortune -- literally!

Children must learn these four important lessons before they flee the nest to go to college or into the real world.

Learn how to budget
The ability to live on microwavable burritos and take good notes are important skills to have in college but, arguably, managing and understanding money may be much more useful at school and through the course of a lifetime.

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It is hoped that you started your children's training early because the foundation of successful personal finance -- everything from mortgages to investing -- hinges on budgeting. 

Luckily, it's very easy to train little kids to budget. It has to start with money, and that means putting cash in kids' hands.

The best way to do that is with an allowance. According to Neale Godfrey, founder of the Children's Financial Network and author of "Money Doesn't Grow on Trees: A Parent's Guide to Raising Financially Responsible Children," allowances serve two purposes: They teach kids to work for money, and they can be used to introduce -- and enforce -- good budgeting habits.

"I start when they are age 3, when they start saying, 'I want, I want,'" she says.

Godfrey recommends paying the child's age in dollars per week.

"So a 3-year-old gets $3 a week, a 10-year old gets $10," she says.

Some experts recommend half that amount, but it's really whatever parents feel comfortable with and then you can adjust as you go.

When teaching kids about money and budgeting, parents should implement a tiered system, with savings for charity, spending and long-term goals.

Lori Mackey, author of "Money Mama and the Three Little Pigs" and founder of Prosperity4Kids, uses a 10-10-10-70 system for teaching kids to budget.

"When your child gets their first dollar, we suggest that you teach them to save 10 percent, invest 10 percent, give 10 percent and live from 70 percent. When you give them a dollar, you give them two quarters and five dimes and then you sit with them and say this dime is for something that is important to you or that you want to help," she says.

"And they will automatically tell you it's going to be animals or nature or maybe they have a family member that's gone through some type of an illness, so you can help them understand what giving back means with 10 cents out of a dollar," says Mackey.

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