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How to Teach Kids About Money

Develop an Interest in Interest: At about second grade, you can show your child how interest can accrue in her favor by adding three pennies to her piggy bank weekly for every dollar she has saved. And if she asks to borrow money, go ahead and lend it -- taking away seven cents each week for every dollar borrowed. No back-of-the-envelope lesson will ever be as vivid as watching that money stream out. (Make sure, of course, she has a way of paying you back; otherwise, the whole exercise will only lead to frustration.)

Follow the Money: Kids of all ages will find turning off the lights in the house a lot more rewarding when the money they save could be their own. Choose a regular monthly bill, such as electric, phone, or water, and read it together. Then discuss how the family might reduce it, and offer an incentive: If these efforts bear fruit, the money saved can go toward a special treat. Choosing just one bill and tracking savings for several months teaches your kids about bill paying and the rewards of saving. Another bonus: It just might inspire you to do a little competitive economizing, too.

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