One way to encourage your child to develop sound money discipline is to make savings a condition of their allowance, so try to account for this when deciding on a weekly or monthly figure.

This, of course, means setting a budget -- no easy task for people of any age. Kids' budgets will vary widely with needs and circumstances. The challenge is what to do when children run afoul of their own guidelines and end up dipping into savings illegitimately.

One answer is to require them to save their allowance in a locked box so that each deposit is irretrievable. Yet, as this doesn't teach restraint and you won't always be around to oversee savings deposits, there are more instructive ways to make the point.

Neale S. Godfrey, co-author of "Money Doesn't Grow on Trees: A Parent's Guide to Raising Financially Responsible Children" with Carolina Edwards (Fireside, 1994), recommends what she calls the Bill-Paying Game, inspired by a scene in the film, "I Remember Mama."

Count out a reasonable "salary" in play money, like that from a Monopoly game. Then, take some old bills and write the amount due on the back of the envelope of each. Show the child the entries in each for "date due," "minimum payment due" and "balance due," then let them decide how much to pay. If the allotted money is enough to pay the bills, everyone wins.

Use the leftover money to introduce the concept of savings. The younger your child, the more limited his or her concept of time. As a result, younger children aren't apt to realize the necessity of long-term savings. Indeed, for a six-year-old, long-term could mean spending the savings this weekend. Yet other children the same age tend to have an intuitive grasp of savings for savings' sake. Long before you give your child an allowance, his or her savings sense will be clear from the way he or she deals with money from the tooth fairy or from Grandma's birthday cards.

If they've been receiving your sage financial teachings from an early age, older children shouldn't have trouble understanding the concepts of long-term and short-term saving. If not, illustrate the concepts by using goals, as with a new video game a month from now versus a bicycle this summer, or college when they are 18. Remind them of these goals to keep them from straying.

The more worthy and ambitious the long-term goal, the more you may want to consider matching grants to reward your child's savings discipline. These grants can be anywhere from 1.25-to-1 to 3- or 4-to-1, depending on the goal and your means. Matching grants are a great way to save for large items like computers, or even a first car.

Younger children understandably have trouble grasping off-site savings, so the best mechanism for them is often a piggy bank for coins and a wallet for bills. Count the money with them periodically, and tell them how close they've come to their goals. Above all, praise their progress.

Once children reach the age of 9 or 10, they're more amenable to banks. Quantitatively adept children of this age can understand the concept of interest rates, especially when you demonstrate with coins to show how their money will grow. Until they're old enough to handle a checking account, children may take withdrawals as cashier's checks or money orders.

The best way to encourage sound spending habits is to exhibit them. When planning a trip to the grocery or discount store, get your children involved in making a judicious list and sticking to it. This will teach them to avoid the bane of all savers: impulse buying.

For big-ticket items like appliances, show them how to do the research: reading articles and reviews, phoning stores to see if your choices are in stock, negotiating with salesmen on price, going to several places to see what's available and compare values.

Doubtless, an occasional purchase will be defective. No problem. Use this to demonstrate the importance of saving sales receipts and reviewing warranties. When you return the goods, take your children along and show them how to overcome salesmen's arguments.

Don't forget the lessons that can be learned from tipping. Studies have shown that the quality of service received is not an important criterion for many tippers. Instead, people often tip to impress the waiter, or in accordance with their opinion of themselves. To ensure that your child tips for service, go over the good and bad points of your server with them, then arrive at an appropriate figure (e.g., 20 percent for excellent service). Make sure they understand that, while the waiter relies on tips to make a living, poor service begets poor tips. This attitude toward value will carry over into purchases of consumer goods.

Before you and your child calculate the tip, add up the items on the check and make sure the total is correct. Surveys have shown that the errors on many restaurant check totals are often mysteriously high, but rarely too low. Given the frequency of this phenomena, there will likely be an opportunity in a restaurant to show your children how to protect themselves from unscrupulous merchants.

Next: Teen years: Credit