Life's a lesson: Kids learn reading and arithmetic in the classroom. They learn sport, and a sense of fairness, on the playground. But surveys show that kids learn everything they know about money from their parents. Precisely when they learn about earning, saving and spending is difficult to pinpoint, but as a parent, it's within your power to raise financially savvy kids if you follow your common sense and these tips:

Start early. Most financial experts agree that children have a sense of money as early as age 3. Parents who don't tackle the issue by preadolescence are probably putting their kids at a serious disadvantage. By junior high school, kids should not only have a sense of spending and saving, but also about budgeting and credit. "It's more important than ever to start the learning process early," says Neale S. Godfrey, author of The Ultimate Kid's Money Book and president of the Children's Financial Network. Godfrey says that between online purchasing power and easy credit, it's easier for kids to make mistakes. And the stakes are much higher than they were a generation ago.

Create a sense of responsibility. Your earliest exchanges with your children on the subject of money should tie goals to a plan of action for achievement. Mary Rowland, author of The New Commonsense Guide to Mutual Funds, wasn't crazy about her son's interest in video games. But when he announced that he was going to buy games with his own personal savings, Rowland saw an opportunity to put him in charge of his own choices and to teach him the value of having a financial goal. "His willingness to take responsibility for the purchase overrode my objections and taught him the power of having your own money," says Rowland.

Most experts agree that once you provide your children with the means to money—through an allowance, family gifts, or chores around the house—they need to have the freedom to decide what to do with it. Otherwise, the lesson on responsibility is lost. But they also need your guidance to help them consider worthy goals. "You wouldn't give your teenagers the keys to the car without first teaching them how to drive," says Godfrey. Responsible financial habits require the same learning process.

Be open about family finances. Ageneration ago it was unthinkable that children should be privy to information about the family budget but then again it was also a time when no one ever spoke about drug use or a bunch of other difficult subjects with their kids. However, if you include your children in the budgeting process, they will develop a sense of the tradeoffs that you must make in everyday life: Should we take a modest vacation and put extra funds toward a sporty family car? Or, should we make do with the old clunker and opt for an expensive getaway? "When children participate in the decision-making process, they are less likely to feel entitled—or deprived," says Rowland.

Encourage savings through personal example and incentives. Children are like sponges. They soak up everything that goes on around them. They're also quick to point out inconsistencies in what their parents say versus what they do. It's no surprise, then, that the notion of saving is likely to remain foreign unless it is supported by "walking the walk." One of the best ways to do this is by sharing a special goal. You can demonstrate the power of putting away a certain amount of money each week, track progress toward the goal, create excitement, then share the joy of achievement when the goal is met.

Teach savings in steps. Once the notion of savings is introduced, you can broaden the discussion to talk about the difference between saving and investing, compound interest, and long-term goals such as retirement and college.

Then, when your kids are old enough to have their own personal goals, encourage them by offering to match their savings to achieve an ambitious goal. Better yet, once they start earning money, agree to match their savings dollars in a ROTH IRA. Save $200 a year in a Roth IRA when your child is between 12 and 21, and you can help them build a tax-free nest egg of more than $211,000 at retirement if the money compounds at 10-percent.

Turn mistakes into valuable lessons. Everyone has done it: blown a little too much on a big purchase, gotten in over their heads—as the saying goes, "sadder but wiser." When your kids do it, help them learn from their mistakes. If your son squanders his allowance on day one, suggest some strategies for making it last come next pay day. Don't scold him—you'll only make him reluctant to discuss his money issues with you down the road. But don't advance him extra money in between. He should feel the pinch.

Better yet, if you can see the mistakes coming, try to intervene. "It's usually easier to avoid a disaster than to pick up the pieces after the fact," says Godfrey, who warns against using money to play "gotcha" with your kids. "The learning experience should be positive—and forgiving."

Teach the proper use of credit. Robert Kiyosaki, author of the best-selling Rich Dad, Poor Dad, believes that a child's attitude about credit can determine whether he or she grows up rich, middle class, or poor. Before you decide how you will approach the issue of credit, look at your own habits. They will probably influence your children more than any other thing you say or do.

Whatever you do, it's important not to back away from the issue. Steve Rhodes, co-founder of Debt Counselors of America, the first Internet-based credit counseling agency, sees the Internet as a valuable new tool to teach kids about credit and debt. For example, at DoughNET.com, iCanBuy.com and RocketCash.com, kids can experience real-world saving, credit and purchasing online in a safe environment. They can even make donations to charity at DoughNET and iCanBuy.

The three sites are geared primarily to pre- or early adolescents. For teenagers, Godfrey suggests a secured credit card through a bank. "After a year of responsible behavior, most teenagers are ready to graduate to an unsecured card," says Godfrey.

Money—Teaching Tools
A regular allowance is one of the best ways to teach the skills they will need to manage their money. Below are the most common questions about allowances:

How much? It depends on the age of the child. The national average, according to a recent Consumer Reports survey, is between $4 and $9 a week for 8 to 12 year olds.

Should you require your kids to work for their allowance? If your goal is to teach your children how to manage money, many experts feel that you should not link allowance to chores on the theory that children should be required to pitch in without associating a dollar tag with every little effort. Yet, others believe that using an allowance as a payment for duties around the house can teach kids that they don't get something for nothing.

Perhaps the best approach is to find some middle ground: An allowance, plus extra pay for work above and beyond regular household chores can reward your ambitious child without penalizing the less materialistic sibling.

Should you dictate how the money gets used? The Consumer Reports survey also showed that children who receive regular allowances were twice as likely to put aside some money for savings and charity than those whose parents gave them spending money on a less formal basis. "When we started with allowances," says Rowland, "we required our children to put aside a portion for saving and giving. Now, they set their own goals." Rowland's daughter recently took $60 of her own babysitting money to contribute to a national disaster relief she had learned about at church. "Sometimes, your kids learn more than you ever expected."

Teach—and Learn
Of course, there's no one right way to teach your kids about money. These guidelines can help you create a positive experience with money early on in your children's lives, which can shape a more responsible, less stressful relationship with money when they're older. And, if they prompt you to take a closer look at your own financial habits, that's a lesson the whole family can take to the bank.