By Rachel Incoll

Your 5-year-old daughter has started asking for money to buy sweets and toys. She obviously has a good understanding of the concept of exchanging money for items she wants or needs, but what are the important lessons you should teach kids about money and saving. You want to make sure that she doesn't grow up into one of those kids that are constantly pestering mom and dad for money, running up credit card debts as a teenager, and not having any idea how to save.

There are 10 basic money skills that every child should learn before they enter the teenage years. It's never too late to learn, but most children are far more receptive to ideas from their parents before they hit the age of thirteen, than after.

1. Money doesn't grow on trees! One of the best known and oldest quotes around. It is important that children understand from early on that money is a limited resource, that mom & dad's bank account will eventually run dry if they keep making withdrawals from it.

2. People go to work to earn money. Money is something that needs to be earned, you are never going to become financially secure sitting around not doing anything, and expecting handouts from people.

3. Credit cards are a form of borrowing. Believe it or not, surveys have shown that an alarmingly high number of teenagers don't realise that credit cards are a form of borrowing. If they don't understand this basic concept, it leaves them at risk of running up crippling credit card debts.

4. Avoid borrowing money where possible. Wherever possible, money should be saved rather than borrowed as borrowing attracts extra costs such as interest, which can in some circumstances, double the amount of money you need to repay.

5. There is good debt & bad debt. No debt is really all that good, but some forms of debt will make you money while others cost you money. Good debt can include a home loan, investment loan or business loan, as these items have a tendency to make money above the amount of interest you have to pay. Bad debt can include credit cards, personal loans or car loans, as these items never make you any money.

6. If you don't have the cash to buy something, then you can't afford it.

7. Spend less than you earn. Many people these days are spending 10% to 20% above what they earn, creating a vicious cycle of high credit card interest rates, long hours at work to pay the credit cards & in some cases bankruptcy. The knowledge of how to budget your money seems to have been lost, make sure your child learns this important lesson!

8. A portion of your money should be given to the needy. Around 10% of your money should be given to those who are in need/charities.

9. Pay yourself first. This is what I call your sanity money! Allow 10% of your money for yourself to spend however you wish.

10. Save at least 10% of your money. Like budgeting, the skill of saving money seems to have been lost over the last 20 years, with fewer people than ever before regularly saving a proportion of their income.

With these lessons well and truly learnt, your child should have no problem managing their finances in a proper manner, and avoiding the credit trap. Don't risk your child becoming one of the hundreds of thousands of young adults that go bankrupt each year!

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