Set goals when teaching your child to save – and allow some of the money to be spent on kids' stuff.

For a young child, the goal and reward can be tangible: a special toy. As the child matures, raise the bar and make the goal a future event such as a trip, clothes for a special occasion or a portion of the needed insurance before your child can drive the family car.

“Your child may not have a future goal in mind,” says Linda Leitz, founder of Pinnacle Financial Concepts in Colorado Springs, Colo. and author of The Ultimate Parenting Map to Money Smart Kids. “If so, remind your child of a recent event – something that had to wait or even an event that was missed because there was no extra money on hand.”

Explain the need to have extra money tucked away and the security it provides. This will be an on-going discussion so remember to peg your comments to your child’s age and understanding, adding detail as the kid matures. You don’t have to go into detail about the family situation, but explain that some financial planners say 10% to 20% of gross family income should be stashed in savings. Others suggest saving enough to cover household expenses for three to six months.

Clearly, your child won’t have to worry about running a household for years, but underscore the need to save for unforeseen events. If your child is young, make it clear that nothing bad will happen in the future. Say that saving is a good thing and doesn’t suggest impending doom.

Keep it simple. If your child is young, two jars with screw-top lids will do: one for savings and the other for routine expenditures. Suggest that your child tuck the savings jar in a drawer or whatever creates a sense of security and exclusivity. Remind your child to keep written record of savings with expenses and the weekly inflow of cash from allowance.

The savings will accumulate quickly, and that’s likely to be a good feeling for your child. When the kid is older, open a savings account at your bank or credit union. Many financial institutions permit minors to open a savings account with a small balance if the parents have an account at the bank. You’ll co-sign for the account, but be sure to have it listed in your child’s name. For most kids, this will be a major step toward adulthood and watching the numbers grow in the passbook will be a heartening experience for all.

A savings account will introduce your child to the wonders of compound interest. Tell your child that the bank puts the money to work through loans to others and it doesn’t just sit in the account like coins piling up in a piggy bank. Explain that the bank pays interest for the use of your money. Keep it basic and when your child is older, introduce the idea of FDIC insurance.

Consider matching a portion of your child’s savings to encourage thrift much like your employer matches a portion of your retirement to encourage wise planning.

“10% starts to get a kid’s attention,” Leitz says. “50% should be the absolute maximum, and it should come only when the child has an after-school job and is saving for college.”

Driving is a rite of passage for many teenagers, and Leitz suggests that parents require their kids to save two times the insurance deductible before being allowed to take the family car out of the driveway. This sets a clear goal and builds responsibility.

You want your child to save as much as possible, but you can’t make the savings completely off limits. A portion of the money – this is open to negotiation – should be available to the child for special projects. Discuss the ground rules before opening an account or tossing money in a jar – then stick to them. Unless there is a reward for saving, your child may not see the point and may simply spend right up to the last nickel as an adult. Remember that planning for the future is a big step for most kids.

The key to success is striking a balance between spending now for special items or events and long-term saving. Make it clear that your child needs your approval to withdraw money from the savings account. This rule and prior discussions about appropriate use of savings will force your child to be serious when tapping the account.

College may seem like the far side of the moon for your child. Gradually introduce the cost of a four-year degree and the idea of shared financial responsibility for college. That means part-time work as a high school student – and saving for the future.

“Children sometimes come up with financial priorities that we don’t agree with,” Leitz says. “Parents should point out the pitfalls, let the kids make their own decisions as they grow up – and live with those choices.”

Click here for five tips for teaching your child about savings.