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Build a lifetime emergency fund

One of the most effective financial lessons you can teach a child is about an emergency fund and how to build it. If your child is fortunate enough to have a summer job, now is a great time to start this education.

Emergency funds should contain three to six months’ worth of money to cover living expenses. Its main focus should cover all loss of income, not just a car payment or a refrigerator repair. With unemployment up and college expenses growing, the earlier you start saving, the better. Some advice:

n Coach them to save something, no matter how small: Encourage a teenager to set up an interest-bearing account to store their savings, someplace not easy to access. For young children, piggy banks work well.

n Develop a balance between treats and sacrifices: Financial independence requires a balance of risk and reward. Suggest to your teen that when they reach a certain savings mark, they can treat themselves to something they want: clothes or an electronic device, then go right back to saving.

n Direct all change into the emergency fund: No matter how young the child, tell them to take non-essential funds and direct them toward the emergency fund.

n Set an example: Does your child see you saving? Do you talk about goals for that money? Your child hears all of this. Think about the money behaviors you’re demonstrating, and try to make them positive.

n Steer away from credit as long as possible: It’s one thing for a teenager to use their parents’ credit card while they’re still living at home. It’s quite another when they are hundreds of miles away. Parents may co-sign the student’s credit card but keep it in the student’s name. That way, parents will know when financial missteps occur. This will be a strong incentive for the student to keep his credit rating clean for the next four years.

n Set up money meetings: Have a few meetings each year to talk about the range of money issues the child is facing. At that time, the emergency fund can be up for inspection and discussion.

n Make them set up a real budget: Young kids can do their first budget on paper. Have them track what they spend and save over time and establish goals for both.

Prospective college students should consider personal finance software to track their expenses. Be sure both the computer and the access to this program are secure.

n Interest them in better-paying, safe savings vehicles: Gravitate from the piggy bank to interest-bearing accounts that might pay more, but remain liquid.

As the emergency fund grows, talk to employed kids about setting up a Roth IRA to get a jump on retirement savings.

n Remind them to grow the emergency fund: It should grow with the person.

More years, more expenses, more emergencies, convince your child that emergency funds should change with life circumstances.

n Encourage saving tax refunds: When Uncle Sam pays them back, an emergency fund is a great place for it to land.

Karin Grablin, a certified financial planner with Dictor & Martin, 2 N. Tamiami Trail, No. 608 in Sarasota, can be reached at (941) 906-7222 or