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Teach your chicks early how to build their nest egg

There's no free lunch at Farrago Farm. If Alice Brownlee's daughters want spending money, they had better head out to the chicken coop and gather some eggs.

The five girls, 6 to 17, are responsible for their egg business, from feeding the chickens to washing the eggs. On a good day, they might sell two or three dozen from their farm near Sudbury. The proceeds - about $40 a week - go into the communal "egg box" until they are needed for ice cream or a movie.

Mrs. Brownlee, who helped start up the egg business when her eldest daughter was 10, says she wanted her girls to understand the value of money and hard work, something she didn't think she could teach by simply handing out a weekly allowance for doing chores.

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"It's hard to say that if you cleaned your room, then you should be paid this amount of money," Mrs. Brownlee says. "We consider that we all live in this house together so we're all responsible for it together. I don't get paid for sweeping the floor."

Mrs. Brownlee has tapped into a new way of thinking about children's financial literacy, a tough-love approach that is gaining traction in the post-recession era. If kids want money, they're going to have to get a job, create a budget, and maybe even sign a contract.

And while parents are clamouring for financial literacy to be included in the public school curriculum, it could take years to implement a national program. In the meantime, an industry is springing up to fill the void. There are websites coaching parents on how to teach budgeting and how to raise CEO kids. Even the big banks are getting in on the action, with online tools and high school tutorials.

When the recession hit, Alisa Weinstein found that advertising jobs in Potomac, Md., were drying up and she and her husband were scrambling to pay off their "foolish" debts. Not wanting her two young children to repeat her mistakes, Ms. Weinstein created the Earn My Keep allowance program, a system whereby kids emulate real-life jobs to earn a paycheque.

Once a week, her daughter picks a job and gets paid. Last weekend, for example, she was a paleontologist searching for dinosaur bones in the garden. On her daughter's sixth birthday, Ms. Weinstein sat her down for a performance review, and Mia got a raise to $2.25.

The tradition of giving kids handouts just doesn't cut it any more, Ms. Weinstein says. "We forget that we're not raising kids, we're raising adults. We're not doing our kids a service by feeding their entitlement."

Michael Furdyk, who at 16 started his first business in the basement of his parents' Toronto home, says raising financially successful kids doesn't have to be complicated. Most kids are naturally curious about making money, so all parents need to do is encourage them.

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Mr. Furdyk recalls how his parents persuaded his reluctant high school teachers to give him co-op credits for working on his website, Three years later, he and his partners sold it for more than $1-million.

Now 28 and running his third business, Mr. Furdyk says although he didn't receive an allowance, he had a paper route as a youngster that garnered him about $60 a month.

"It was earning money, versus being given it as an allowance, that really taught me the value of hard work," he says. "I think it really helps kids appreciate the fact that it doesn't just come from nowhere."

Karyn Hodgens, a children's personal finance educator in Rocklin, Calif., says giving an allowance has to be done right - don't tie it to chores or hand it over without stipulations. Ms. Hodgens says parents need to help kids internalize good money habits by having a separate list of paid jobs beyond household chores, such as vacuuming the car for $5.

Ms. Hodgens, author of Raised For Richness, takes it a step further with her two boys, now 16 and 18. They attend family meetings to decide how to budget their money and then sign a contract to keep them on track. "They choose it, and that's the whole motivational thing."

A recent Harris-Decima survey conducted for the Canadian Institute of Chartered Accountants found that 85 per cent of Canadians believe financial management skills should be taught in schools. The majority of parents surveyed, 78 per cent, said they tried to teach their kids financial skills at home, but two-thirds believed they hadn't been very successful.

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Jason Presement, a salesman in Richmond Hill, Ont., says he's tried to teach his two teenagers about money, with mixed results. When his son, 15, recently received some bar mitzvah money, Mr. Presement took him to his financial planner to talk about investing.

"He really took very little interest in it because the materials that they had for him were not age-appropriate," he says. "How do you explain mutual funds, GICs and bonds and everything else to them in a way that they're going to understand?"

Circumstances forced Sarah Cook, founder of the Raising CEO Kids website, to teach her kids financial skills. Seven years ago, Ms. Cook had just moved to Sacramento, Calif., with three young kids, so her husband could take his first teaching job, when he suddenly became very ill and was out of work for months.

Ms. Cook had to cut back but didn't want her kids to feel deprived, so she set up budgets for what she could afford to spend on their clothes and activities, and encouraged them to make up the extra. "I started teaching my kids how they could earn money, so if it wasn't in the family budget, I didn't have to say no to them."

Now 14, her eldest son makes money selling items on eBay, fixing computers and editing videos. Her 10-year-old daughter has just published her first cookbook. And her youngest, 7, is working on a fitness book for kids.

It hasn't always gone smoothly, Ms. Cook says. Recently, her son had a disappointing transaction on eBay and wanted his parents to bail him out, but they refused. "Sometimes we do let them fall on their face, and I think that's a really good lesson for them to learn," Ms. Cook says. "I would rather have them experience failure now than when they have a mortgage."

Allowance do's and don'ts

Don't tie allowance to chores. Kids should only be paid for jobs that go beyond everyday household responsibilities.

Do be consistent. Pick a system and commit to it so your kids know what to expect.

Don't wait. By 5 or 6, kids are ready and able to start learning about money.

Do make it fun. Children will learn more if you stay positive and make the lesson engaging.

Don't be controlling. Letting kids make spending mistakes will help them learn to avoid overspending in the future.

Do set some goals. Discuss with your kids the reasons for the allowance and your expectations, then get it in writing.

Don't spoil them. Don't give so much money that your kids aren't motivated to look for other ways to earn. And don't lend them money if they've spent their allowance all at once.

Do set an example. Modelling good financial habits is one of the best ways to teach them to your kids.

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