Parents who don't require their children to earn an allowance set up a precedent for feeling entitled that will come back around to bite those lovely, spoiled children when they reach adulthood. When you pay your children an allowance based on the energy they are willing to invest to complete tasks, you teach them lessons that sharpen their thinking. Moreover, you teach them methods of earning, saving, investing, and spending that will enrich them all their lives.

Even if you begin allowances in first or second grade, it's good to tie them to the successful completion of simple “jobs” around the house. Obviously, expectations will rise as the child's ability to contribute — and to understand the game — increases. Some valuable lessons include these:

• The number of hours they have to work to afford desired items

• The ability to spend money only when they have it

• To necessity of saving for what they really want

By the time they are nine or ten, transition into budgeting basics. For example, sit down with your children and establish parameters for what you will provide as a parent and what they will now be expected to buy with their allowance. Children need to understand that you will pay for their needs (housing, clothing, food, education, medical care, and so on), but that their wants (such as video games, toys, videos, or branded clothing) should be earned and paid for with their allowance.

In addition to matching their savings, you might also agree to pay one-half of the cost of educational toys or hobbies but require them to buy their own recreational video games, toys, DVDs, and CDs. Once you set clear parameters, it's important to adhere to them — doing so teaches your maturing children these important lessons:

• How to connect energy expended with compensation

• How to delay gratification, and why it's wise to do so

• How to distinguish between wants and needs

• How to set priorities and make difficult choices

• How to learn from their mistakes How to determine an item's real value

• How to match their expectations to their income

• How to care for expensive investments

• How to put the brakes on when they fall short

Since they are on the brink of being responsible for money management — living without a parent's safety net — teenagers require a sharper learning curve. It's time to teach them how to truly live with within their means and to make wise financial decisions. Use your newly polished skills to help them create both a budget and financial goals, and then allow them to make mistakes (within reason) and to suffer the consequences.

Even though you are still paying for their needs, you can allocate a set figure to be spent on clothing and shoes and then give them responsibility for making purchases. Before they begin, help them compose a list of what they need (two pairs of jeans, two pairs of shoes, three blouses, a jacket) and then calculate the costs. When you've arrived at a fair estimate, you could offer to let them keep any savings they generate by comparison shopping, reordering priorities, or lowering their expectations.