Last week Jeffrey Strain looked at how to determine the amount of money you give your kids and how often. This week he suggests how this pocket money be used to teach children some useful lessons in saving and budgeting that will be priceless in later life.

Once an allowance has been determined and the money given, you'll have positioned your children to learn a number of valuable financial lessons which will last them a lifetime. Your children will quickly learn the importance of anticipating essential costs the first time they receive their weekly allowance only to discover they forgot to include one of their weekly expenses. They'll learn to comfortably handle money as you make them responsible for all their own purchases. Your children should pay their own lesson fees. They should pay for their own bus or train passes. Even when you go out to eat, you should request separate bills so each of your children can pay for their own meal.

In giving your children this financial responsibility it's certain that they'll make a number of foolish financial mistakes. These mistakes will be vital lessons where your children will probably learn the most as they provide the foundation material to re-enforce the importance of sound financial skills and thinking. The essential thing to remember is that when your children do make mistakes you don't simply bail them out of trouble.

There will be times when you'll need to lend money to your children due to a foolish mistake, or because they want to make a large monetary purchase they can't currently afford. Making these loans is perfectly acceptable, but they should be paid back, and they should be paid back as they would be in the real worldÑwith interest. This will teach your child that there is no such thing as free money, and they'll learn the true costs of maxing out their credit card long before they ever have one of their own.

From the beginning you should teach your children to save a portion of their allowance each week. Explain that savings are similar to a seat belt or a bicycle helmet. Nobody expects to get into an accident, but if one does happen it's good to have a safety measure which will help protect you. A savings account functions in a similar way. Nobody expects to have a financial crisis, but if one does occur, their savings will help protect them during the unexpected event. With the knowledge that there's a safety net protecting them, your children will have the confidence to experiment and learn without the fear of having nothing if they do make some mistakes.

It's also advisable to have your children write down their weekly budgets. Learning to put financial transactions into writing and to keep records will be invaluable for keeping your children financially afloat when they become adults. In addition, you should create a financial balance sheet with your children each year, listing all of their assets (CDs, bike, savings account etc.) as well as their liabilities (loans from you) so your children can clearly see where their money has gone and what they have of value. As your children get older, these lessons will also teach them about value and depreciation of assets.

Teaching your children these basic financial skills will take time, patience, effort and probably an upgrading of your own personal financial skills. The benefits, however, will not only help you and your children today, but they'll provide your children with the financial knowledge you wish you'd always been taught. Even more importantly, you'll have given your children the financial resources needed to solve their own financial problems. This will ensure they won't need to be bailed out of financial trouble as young adults like many of their peers will who were never taught these skills. That, in essence, means your financial investment in your children today will reward you greatly when you can keep all your hard earned money for yourself during retirement.

Reprinted by permission of Kansai Time Out.