Dear Carrie, My 4-year old loves to bring the money she gets from her grandparents to the store to buy treats. I don't have the heart to tell her when she doesn't have enough, so I usually make up the difference. But I'd like her to begin to learn the value of money. Is she too young to understand? And when should I start giving her an allowance? —A Reader

Dear Reader, I've always believed that children can learn meaningful lessons about money at a very early age. In fact, by about age 3, they're listening and learning from us whether we're aware of it or not. When we take our kids to the grocery store, to the bank or clothes shopping, even if we don't include them in the transactions, they're picking up signals and attitudes about money and how we handle it. Why not turn these passive experiences into active learning opportunities?

Your 4-year old is already aware that money has value; it can be used to buy something special. So now would be a perfect time to help her understand that there are limits to what money can buy, and also that she may have to make a choice. There are some fun ways to do this.

Start with a simple piggy bank

At 4, your daughter is probably a proficient counter, so help her learn more about the value of money by first putting any coins she gets into a piggy bank. Periodically take the coins out so she can count them. At the same time, you can help her identify what they are, and what each is worth, i.e., 10 pennies make a dime, 5 nickels make a quarter.

Once she's accumulated enough to buy something — even a dollar or two — explain to her that different things cost different amounts of money. Then, when you go to the store together, you can look at price tags and discuss what that means. Let her select an item that she can afford, pay for it, get a receipt and keep any change to put back in the piggy bank. She'll probably be proud of her successful transaction.

To keep this lesson going, you can do some comparison shopping and let her handle small purchases whenever appropriate

Introduce a fun way to save for something special

Saving is another money lesson kids can learn at a young age. I'd start now to help your daughter understand that she may have to wait to buy the things she wants. For instance, the next time she has her heart set on something, talk with her about how much it costs and tell her she can save her money until she has enough to buy it.

You might have her decorate a special jar for that particular savings goal. As she gets money from her grandparents, have her put it in the savings jar. Think how excited she'll be when she finally goes with you to make the purchase with the money she's saved.

Consider an allowance at about age five

An allowance gives kids a chance to have money of their own on a regular basis and learn to manage it. Ages 5 to 8 is about the right time to start.

There are different points of view on whether to tie an allowance to household chores. Whatever you decide, be very clear about your daughter's responsibilities and if you expect her to pay for certain things with her own money.

How much you give is up to you (you might talk to other parents to get the going rate), but it should be enough so that your daughter can actually use it in a meaningful way, making spending and saving decisions. With a young child, I'd keep the amount small and make it weekly. You can change the parameters as your daughter gets older, increasing the amount and time frame and perhaps the responsibilities that go along with the allowance.

The most important thing with an allowance is to let kids make their own spending decisions — and learn from their own mistakes. Don't jump immediately to the rescue if you daughter misspends. Rather, help her work through the situation and make better decisions the next time.

Enjoy every milestone

I applaud you for starting your daughter's financial education early. As she gets older, you can help her through other money milestones like making a first big purchase, buying a car and saving for college. These real-life experiences will give you the chance to teach her important financial lessons and give your daughter the chance to take pride in her accomplishments. Most importantly, you'll be setting her on a solid path to financial independence. To me, that's the real value.

Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER(tm), is president of Charles Schwab Foundation and author of "It Pays to Talk." You can email Carrie at [email protected]. This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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