Where does money come from? This can be as tough a question for parents to explain to their children as where babies come from. Both are complex issues, and your ability to discuss them depends on your experiences and values. Unlike the birds and the bees, however, the best way to teach your kids about the financial facts of life is to encourage them to begin practicing money management at an early age.

When it comes to finances (and babies), many schools are unprepared to tackle the subject. So unless you want the media or your children's peers to teach the lessons, it's up to you to take the lead.

For many youngsters, their money education starts with an allowance, usually beginning during a child's early grade school years. An allowance can be an effective way for parents to start teaching financial discipline and decision-making skills. To do so, however, requires more than forking over a few bills each week. Without tying the allowance to consistently enforced financial responsibilities, we can enable whimsical purchases instead of encouraging smart money management.

Some parents base the allowance strictly on age (such as $1 per year of age), but an allowance works best as "learning capital." Base the amount on your kids' maturity level and what you expect them to use the money for. They should be responsible for some nondiscretionary expenses (school lunches, haircuts, clothes, bus fare), plus some discretionary expenses (video games, movies, pizza, trading cards), savings and charitable giving.

After you and your children negotiate a figure you both can live with, stop handing out money on the dole, so your kids really have to live within their budget. Once or twice a year review how the system is working and base any raises on new expenses they will now cover with the extra cash. Remember, an allowance is supposed to be a teaching took, and negotiation skills are an important part of the lesson.

Some parents tie the allowance to chores, grades or behavior, which can backfire. What if your child doesn't feel like feeding the dog, taking out the trash or studying for an exam and says, "Dock my allowance, I don't care"? Everyone loses: The dog goes hungry, the garbage piles up, your child's schoolwork suffers, and he loses his learning capital.

Many experts find it more effective to encourage positive behavior with praise and attention, which boost self-esteem and internal motivation.

Instead of monetary rewards or punishments, I suggest finding consequences that match the action. For instance, when my 12-year-old son, Ryan, doesn't feel like setting the table, I might not feel like doing his laundry that week - he'll have to do it himself. He gets the message and still has the money he needs to practice managing it.

Learning to manage money takes quite a bit of practice.