The most common way to teach a child about money is through an allowance. Before giving your child an allowance, however, you may want to consider how you want it used.

Another point to consider is whether the child needs to earn the allowance. Some families just give it to the child. They feel that household chores are done simply because an individual is a family member. If you can’t decide, a compromise might be in order where you give a small allowance plus the chance to earn extra by doing extra chores.

Either way, make sure the child is aware of your expectations as to what to do with the funds. Maybe a certain day each week is “allowance” day. You might want to give the child a raise if all goes well.

Another option for teaching financial concepts is to open a savings account at a “real” bank. This can teach children the concepts of earning interest and how money compounds. You might want to consider asking them to save a part of their allowance each week into the account to meet their long and short term goals. If the child does well with their savings program, consider a matching contribution.

Going shopping with your child is another opportunity for a finance lesson. It can be a time to discuss needs versus wants. Teach your child to compare price and quality. Maybe buying a generic cereal instead of a name brand. Maybe the cost of buying two kinds of snacks isn’t in the budget. Perhaps you could take your child shopping for that item they have been saving for.

Let them make mistakes. If the toy they wanted just isn’t that much fun, your child may think harder before future spending.

As you child grows, he or she may have a part-time job after school. Discuss with your child how the money will be used. Is it for fun with friends or gas for the car or both? Your child needs to learn to decide what to spend money on, track what is spent, and look for ways to increase income and cut back on expenses, if needed.

Older children may have larger goals, a car for example. Even larger goals could include a college education or an apartment. A bank account is probably the primary savings vehicle, but you might want to consider introducing your child to the principals of investing.

You can do this by opening a small investment account for them. Try to find an account that can be opened with low initial amounts and one that provides plenty of educational material.

Finally, your child is heading off to college. Is it time for a big step such as a credit card? Most credit card companies will not issue a card unless an adult cosigns the credit card agreement. If you do decide to do this, keep in mind that you are taking on legal liability for repaying the debt. The debt will also appear on your credit report.

If you decide to go this route, set some limits on the card’s use. Have the credit limit on the card set at a low number. This allows the child to practice using the card without too much of a chance of getting into trouble.

The child will need to understand how the interest on the unpaid balance accrues. You and your child need to agree on how to make the monthly payments and what will happen if the bill goes unpaid. Show your child how long it will take to pay off a card if you only make the minimum payments.

Marc A. Hebert, MS, CFP, is a senior member and president of the wealth management and financial planning firm The Harbor Group of Bedford. Email questions to Marc at Your question and his response might appear in a future column.