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Kids today are entering a world where financial literacy is more essential than ever. But how can you ensure that they learn the right concepts and enter adulthood with a sense of responsible spending and saving?

The key, experts say, is to make it a part of their lives from an early time and keep it as part of your family dialogue.

“To help children form healthy financial habits, start early and talk about it often,” said Elle Kaplan, CEO and founding partner of Lexion Capital Management, an asset management firm. “Parents should emphasize that being in control of your own money is fun and empowering.”

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The ABCs of Earning

So, where do you start with teaching kids about money? An allowance can teach them about earning their own money. But when deciding on that allowance, let your child really earn it.

“A child should not be given a flat allowance,” Kaplan said. “Instead they should be paid for specific chores they are assigned and accomplish. This way a child develops the concept that money is earned. When a child earns their money, they will appreciate it more.”

You can also work the allowance so that it represents the things they do above and beyond normal chores, another expert suggests.

“Offer financial allowance for jobs/chores above and beyond the regular expected tasks. Include walking the dog; cleaning out the bird cage; washing and drying the family dinner dishes; set the table; doing own laundry, etc,” Dr. Fran Walfish, a leading child, teen, parent, and family psychotherapist and author in Beverly Hills, Calif., said in an email interview.

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This reinforces that some things are done because they have to be – such as self-care and keeping a home clean – while others are done in pursuit of goals and finances.

Budgeting for Kids

Once kids are earning money, it’s time to start talking about how to budget those funds. “This is the beginning of a lifelong lesson in personal work ethic and goal setting,” Kaplan said. “Pick out a special toy or game that your child wants, and help them do the math to figure out how many chores they will need to do to earn the money to buy it for themselves.”

But saving doesn’t have to be just in pursuit of a purchase. You can also teach children how to save money for the long term, too – such as, depositing some of the money earned into a savings account.  “Use words that motivate versus criticize when you discuss accountability and responsibility,” Walfish said.

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Teens and Taxes

Have a teen with a job? It’s not too late to teach her a financial thing or two. In fact, when your child gets that ubiquitous first paycheck, it may come as a surprise – especially when a chunk of the earnings goes to the government.

Yes, it’s time to talk taxes. “A good starting point is to help a child understand that by paying taxes, we are enabling the government to provide services like public schools, roads, and police and fire protection,” said Mitchell Fox, co-founder of online taxes guide GoodApril.com.

“Taxes are pay-as-you-go, and typically automatic: Employers are required to withhold taxes from the salaries of their employees, and to give them to the government on a regular basis throughout the year. Thus, the majority of Americans don’t have to actually give their money to the government directly — their employer does it for them,” Fox said, when providing an example of what parents should explain to their teens.

If your teens are wondering about tax rates, Fox says to tell them that taxes are tiered based on income. “The more a person makes, the higher the percentage of their wages that are taxed,” Fox said. “People who earn very little income, including teenagers with summer jobs, typically pay very little in taxes, whereas business executives pay much more.”

In some cases, teens will get some of their taxes back in a tax return – though not always. “As a kid, filing taxes usually means getting money back,” Fox said. “If you have a summer job, your employer typically withholds taxes from your paycheck as if you were going to work the entire year, thus earning higher income, and needing more taxes to be withheld.”

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