No magic in making money grow

Tip: encourage a savings habit
Say you've agreed to hand over $2 a week in pocket money. Now break it down into four 50c pieces and have four jars on hand - marked for short term saving, long term saving, spending and money to give away.

Your littlie is going to see the pile of money growing before their eyes. They'll be able to set themselves goals to save for, but still be able to hit the lolly shop on pay day. And on the subject of pay day, make sure you set a date each week and keep to it - after all, junior has to budget too and needs to know their money will be coming in on time.

Once the long-term saving jar starts to fill up a bit, you can look at setting up a bank account - make it one with a passbook so they can see a clear record of deposits and withdrawals. With that under way they'll be able to see the power of compound interest, which is really going to make their balance grow.

Tip: discuss your finances openly
There are so many everyday encounters that can teach children money values, but don't assume they'll pick up the basics on their own. The "endless cash" machines you go to can seem like magic, unless you show them your bank statements and explain where the money really comes from.

Don't be shy about discussing how much you earn - or showing them your budget -when they ask "why can't I have one?" Questions like that are a golden opportunity to teach some money values.

So too is the situation where junior has spent all his or her cash, but really wants the cool - and expensive - new toy. Don't give in to temptation and buy the toy anyway, because you've got a perfect learning tool in front of you - a "when it's gone, it's gone" situation, which is as true in adult life as it is for a five-year-old.

Learning money skills now is important
In future years your children may face student loans, hire purchase, credit card bills and mortgages. Right now they can be learning that there's a trade off between what they spend today and what they save for tomorrow.

Saving today reduces your choices right now - but it increases your choices in the future; borrowing creates choices too - but you have to pay it back, plus interest.

For more tips to teach your children about money matters visit Kids & Money on www.sorted.org.nz. While you're there, check out Money Island - a fun set of games and activities designed to teach children about everyday money concepts such as interest and budgeting.

8 rules for Sorted parents

1. Encourage your kids to save for things they want
2. Use everyday encounters to help kids learn about money
3. Explain interest
4. Be aware of money personalities
5. Talk about money with your kids
6. Be consistent
7. Keep records
8. Find out what's happening at school