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Teach kids that spending money isn’t child’s play

From starting with an allowance first to opening a checking account,  TODAY's Jean Chatzky offers money management advice and tips for parents whose children want plastic.
/ Source: TODAY

As we head into holiday shopping season, you may notice that some of your favorite toys have a new plastic version — credit and debit cards. The classic Monopoly game now comes with a debit card instead of all those little bills. Barbie has her own credit card in an electronic purse. There's even a Hello Kitty debit card!

But are these new-and-improved versions going to help you raise money-savvy kids — or just the opposite? “Money” magazine's Jean Chatzky, who is also TODAY's Financial editor, has tips on how to deal with these plastic problems and how to help your kids manage money.

We are already worried that we're raising a generation of children who don't know how to handle money. They don't seem to understand that financial resources are limited, so they spend more than they have and then look to mom and dad for a bail-out. Part of the problem, I believe, is that they were raised in an era when money was largely invisible. When I grew up, my parents took their paychecks to the bank and withdrew cash from a teller, which they used for  purchases. Bills were paid from the kitchen table. Today, however, paychecks are direct-deposited; we get cash from a machine, and pay for just about everything with plastic. We pay our bills online — often from work. Kids have no idea where our money comes from or how it moves. These new games just exaggerate those differences. When kids count Monopoly money, they not only get a lesson in math, they get the pit in their stomach when they are out of big bills and down to only $5’s and $10’s.

What’s the solution?

  • Give an allowance — Kids need to learn that a) money is limited andb) that they need to make choices about what they do and don't buy. If you give your child an allowance and continue to pay for all the things they want, you completely miss the opportunity to teach them this lesson. So, when you start an allowance, decide which things they are going to be responsible to pay for with their own money, things that you are no longer going to pay for. When they are young, this may be candy at the grocery store. As they get older, school lunches or clothing. You have to give them enough money to cover some of these purchases, but not so much that they can buy without thinking about it.

What about putting an allowance on a stored value card?

  • Don't bail out your kids — I think they can be good tools as long as parents use them properly, which means not bailing out your kids when they've exhausted the value before they've exhausted the week or the month. But you have to watch your own child. To some kids, plastic isn't real money, it's magic money, which means they spend more than they would if they were dealing in cash. If you get the sense that your child is overspending, switch strategies. Finally, watch the fees that come with some of these cards — you may end up paying for activation, ATM withdrawals, monthly maintenance, balance inquiries and (if you don't use the card for a while) inactivity.

  • Encourage work to earn more — There will come a time when your kids want to buy something that allowance won't cover. When they're young, give them ways at home to earn extra money — you can match their savings dollar for dollar, or pay them for chores you might pay an outsider to do (walking the dog, washing the car). When they're in middle and high school, encourage them to work outside the home.

  • Open a checking account with a debit card in high school — Once your children are working, their money no longer belongs in a shoebox or drawer. Make your way to the most convenient local bank and open a checking account with a debit card. Now is the time to have a conversation that the money used on their plastic comes from money they put in. Warn them that although they can use their debit card for purchases, the bank will very likely allow them to withdraw more money than they have and charge an overdraft fee of $20 to $30. For that reason, it's important that they keep track of how much is in their account. Show them how to keep a checkbook register on paper or online.

  • Get a credit card in college — When you get out of college, you need to have a credit history in order to rent an apartment, buy a car, sometimes get a job. The best way to do that is to have a credit card that you use and then pay on time. I also like the idea of having one in emergencies.

About one-third of high school seniors use a credit card. Half have cards in their own name, half are using cards issued in a parent's name. Is high school too early for kids to get credit cards?

  • It's too early for a card in their own name — You need to be 18 years old, but there are parents who put their children on as joint cardholders and then monitor the spending and bill paying. I think there's some wisdom to that. Just know that if your child goes on a spending binge on a joint card, you are liable for those charges.
  • Do not bail them out! — I can't say this enough. None of these lessons will have ANY staying power if you continually hand your kids more money. They need to learn that the choices they make have consequences in their lives. The earlier they learn that lesson, the better off they will be.

Jean Chatzky is an editor-at-large at “Money” magazine and serves as AOL’s official Money Coach. She is the personal finance editor for NBC’s “Today” show and is also a columnist for Life magazine. She is the author of four books, including “Pay It Down! From Debt to Wealth on $10 a Day” (Portfolio, 2004). To find out more, visit her Web site, .