When Adrianne Gonzales was five years old, she engraved her name on the back of the family car with a rock. Most parents would have ranted and raved — and left it at that. Hers went further. “We saw it as a perfect opportunity for her to learn that things cost money and that there are consequences to actions like that,” says Melinda Gonzales Bernal, a veteran Tucson schoolteacher and administrator. For six months, Adrianne’s parents made her save half of her $1-a-week allowance to build a fund to help repaint the car. “We wanted her to be able to participate in righting the wrong she’d done,” explains her mother. “Learning to manage money is part of becoming responsible.”

No doubt most parents would agree with that thought. Yet few make any organized effort to teach their kids from an early age how to earn, spend, save, borrow and invest. Even a conscientious parent like Bernal could use some help. For example, experts in both child psychology and financial planning suggest that allowance should not be used to punish or reward. “Never tie allowance one-on-one with chores or punishment,” says Jay Muzychenko of the National Foundation for Consumer Credit. “A family should not operate the same way as a marketplace.”

What authoritative evidence there is suggests that many kids aren’t taught essential money skills. A recent survey by the Joint Council on Economic Education, for example, found “appalling ignorance” of monetary concepts among high school students, two-thirds of whom couldn’t even define “profit.” No wonder young people mismanage their money. “They enter college expecting to maintain the same level of lifestyle they had in their parents’ homes,” says Charlene Sullivan, associate professor of management at Purdue University. “They see credit as a permanent source of funds, and they get into trouble.”

Our schools are partly at fault. Few have either the resources or expertise to teach money management. Still, most responsibility falls on the parents — since wisdom about money, like basic honesty or good manners, begins at home. Whether you realize it or not, how much you save, borrow, give to charity and so forth depends on your fundamental values, which are passed on to your kids. “When it comes to core values,” says Dr. Mio Fredland, a New York City child and adolescent psychiatrist, “children learn mainly by imitating their parents.”

This intimate connection between money and values may explain why some parents are uncomfortable discussing money with their kids. “Money is the last taboo, even in therapy,” observes Marcia Halperin, a Wilmington, Del. psychologist and school consultant. “Lots of parents feel awkward about revealing their own finances, and that reticence makes the subject seem all the more mysterious to children.”

Furthermore, help is hard to find: any well-stocked bookstore will have two or three books on how to explain sex to a teenager. But try to find one on finance.

Lacking firm guidance, many parents opt for the easiest — and worst — solution: they throw money at the problem. U.S. children receive $9 billion a year from adults, according to a study by James McNeal at Texas A&M, 53% in allowance and the rest in payment for chores or special-occasion gifts. Among 300 Money subscribers with children surveyed by the Gallup Organization for our latest Americans and Their Money poll, a third give their kids $25 a week or more by the time they reach 18. Yet only about half of them require their children to save any of the allowance. (The telephone poll’s margin of error is plus or minus six percentage points.)

In an attempt to help parents, Money offers this commonsense program based on interviews with financial experts, educators, child psychologists and parents. The guidelines, summarized in the box on page 130 and illustrated on these pages by drawings from children at New York City’s Trinity School, may not appeal to every family, of course. At the very least, however, they should help you to devise your own plan. You may also want to use the resource list on page 135 that includes books, pamphlets, banks and related services.

When to start.

Beginning about age three, explain to your tot about how things are bought and sold when you go to the grocery store or the gas station. Hand them small sums an.d have them choose among things to buy themselves. “Children need real-world experience, not just explanation, on which to base their understanding,” says Sylvia C. Chard, co-author of an influential early-childhood education book Engaging Children ‘s Minds: The Project Approach (Ablex Publishing, $24.95 in paperback). Don’t be daunted if your youngster has trouble grasping abstractions such as the notion of value. For example, a young child almost always thinks that larger coins are worth more than smaller ones. “So you may have a hard time,” says Chard, “persuading a five-year-old that a nickel is worth less than a dime.”

The first allowance.

By age six or so, introduce the weekly dole. This is not as easy as it sounds.

For one thing, there is the question of how much allowance to give: to help you judge, the chart on page 135 shows the average amount that Money parents give their children from age four (SI a week) through 18 ($20).

Even more critical, in the judgment of experts, is deciding on what basis the allowance will be given. In our poll, more than half of the parents, like Bernal, said they made allowance payments conditional on their children behaving well, doing chores at home or performing well in school. The experts we consulted criticized that approach, however. “When you pay your kids for routine tasks, you open the door for your child to say, ’I’m not making my bed. I don’t care if I don’t get any money,’ ” says stockbroker Kenneth Forest Davis, who is a co-author of one of the best books on the subject (Kids and Cash, Oak Tree Publications, 1979), now unfortunately out of print. “The allowance then becomes a source of conflict and manipulation rather than the healthy incentive you’d planned.”

Davis and others suggest instead that you imitate the one-third of our parents who give their children a basic allowance with no strings just because they are family members. By the same token, as family members they should have certain chores that must be performed regardless. Then, if they do work beyond the routine, they earn extra. And as noted, don’t cut off allowance as punishment: that encourages the notion that bad behavior is negotiable and not simply unacceptable.

Raise the allowance yearly.

Davis recommends that you set the amount in a regular annual conference with your children on any date that is easy to remember, such as July 4. At that time, also increase the scope of things your chi id must pay for. Among Money parents, for example, 31% insist that their kids pay for their own dates; 43% make them buy any food they want away from home (except school lunches); and 72% ask them to finance their own entertainment. Your aim should be to rear children who can manage a year’s expenses on their own by the time they leave for college.

Teach them basic home economics as soon as they know enough math.

“Tell them they can buy their favorite cereal at the store. But show them how to find the most cost efficient size,” suggests Harold Evensky, a Miami financial planner. Also, have them figure the tip at restaurants. Or get an old newspaper to show how prices have gone up—a painless way of illustrating the essentials of inflation.

Help your child open a savings account, probably at around age 10.

Check with your bank, however, before marching your little one down there. Many commercial institutions no longer accept small deposits — or they charge outrageous fees. Even if you can’t find a child-friendly bank nearby, you have other options. For example, many credit unions welcome them. So do specialty banks like Young Americans Bank in Denver (see the box on page 135), where the average saver is nine years old and has a deposit of only $250. Alternatively, pool holiday gifts with your child’s savings and invest in a money-market fund.

Include your child in family budget talks.

Start gradually with topics they might reasonably have a say in — such as whether to renovate the playroom or save the money for a topnotch swing set. Be as forthcoming about your own finances as you can, depending on your child’s maturity. Obviously, you don’t want your kids blabbing your salary to their friends. You do, however, want them to grasp that your money supply is not infinite. When Garth and Mary Fort of St. Louis told their four kids that they couldn’t afford an expensive vacation a few years ago, Daniel — then nine — found a “Kids Ski Free” trip to Colorado. The Forts ended up getting cheap flights and an inexpensive condo, and the kids, indeed, skied free.

With teenagers, start discussing how to pay for college, and get your son or daughter involved in deciding where their money will be invested. Set firm ground rules — as Dr. David Ottman, a Sacramento ophthalmologist, discovered the hard way. At the beginning of 1988, Ottman gave each of his three college-age children enough money to pay all their school tuition bills that year and told them to invest it. His elder son, a senior majoring in engineering, put his share in Fidelity’s Magellan Fund. His daughter, a biologist, chose bank CDs. The younger son, a freshman who plans to major in finance, bet the bundle on Sara Lee stock. But the lesson backfired because the two who picked equities were rewarded when the market advanced smartly, while Ottman’s daughter — who made the wiser investment choice, given the short time horizon — was penalized for her good judgment.

Encourage them to get involved in more sophisticated money handling. By age 16 or so, your children should have a checking account, perhaps even with automated teller machine cash cards, and should reconcile the statement themselves. “They’ll soon learn that their bank balances don’t always show how much money they have if there are any checks outstanding,” says Katherine Sandberg, a Houston financial planner. Our poll suggests that many Money parents follow this advice: some 81% have helped their children open savings accounts, 22% have begun checking accounts, 13% have given them ATM cards, and an equal proportion have entrusted their kids with family credit cards.

About one family in eight has even turned over to their kids the responsibility for buying their own clothes. Dr. Fredland is among this group. When her daughter Katherine was 10 or 11. “she had a terrible case of the gimmes.” Fredland recalls. “I’d had it by the time she was 12, and I gave her $600 a year in quarterly installments to buy clothes. From then on, she’s always been a very sensible shopper.”

Finally, encourage your kids to get part-time work when they’re old enough to handle it — usually between 14 and 17. “Earning money is the only way kids can understand how jobs work,’’ says broker Davis. It will also help them appreciate how hard it is to make money — and thus help squelch reactions like the one that Ken Lauerman of Kirkland, Wash, got when he made the mistake of confiding his income to his 12-year-old son. The boy’s candid response? “Wow, Dad, let’s go out and buy a BMW!’’’

Not surprisingly. Davis followed his own advice in raising his two daughters, now ages 23 and 26. By the time they left for college, he was able to write each a check for that year’s expenses, to be supplemented by student loans and part-time work. “I even managed my budget in another currency when I studied in France my junior year.” says his youngest daughter Julie, a marketing staffer for the California Society for C.P.A.s. “That was really difficult, but 1 never once had to ask my parents for money!”

THESE PARENTS CHALLENGED THEIR KIDS TO INVEST ON THEIR OWN

► When David Collins and Victoria Felton married in 1985, one of the first things they did was call their blended family of five teenagers together and announce an unusual contest. Each child would get $4,000 to invest. Then every 12 months, the child whose holdings had earned the most would get a bonus ($100 the first year, $200 the next, and so on). At the end of four years, the kid with the biggest nest egg would win an around-the-world trip for two — airfare provided by David and Victoria’s frequent-flier miles.

“The kids were surprised at first, and a little scared,” says David, 52, head of a Costa Mesa, Calif, firm that builds retirement housing. “But we told them that it was better to lose this money now than to lose their rent or life savings later.”

The youthful investors made many of the same mistakes that adults do. Jennifer Collins, now 25, and Nicole Collins, 21, pooled their money after the first six months, eventually losing $1,213 each — $700 of which was in commissions and the rest in speculative stocks. “I was overly anxious to win the first bonus,” Jennifer later admitted in the annual report that each child was required to write. “They both learned the hard way that you must get involved and understand your investments,” says their dad.

Kimberly Felton, 24, parked her share in a money-market fund, where it earned a meager 6% a year. Todd Felton, 20, put his in an equity mutual fund and did only slightly better — 7% a year. By contrast, the eventual winner — David Collins II — became an aggressive trader of no-load mutual funds, phoning in his transactions at midnight because “at that hour they would always answer quicker and give you better service,” he says. His earnings: a solid 10% a year, duly recorded at an awards ceremony at the Collins’ Laguna Beach home in December (see the photo above). “I was grateful for the chance to learn about money early,” says the 22-year-old Pepperdine law student, who plans to travel to Africa, Asia and Indonesia. “We weren’t jealous, because David deserved it,” says Jennifer. “Now we’re fighting over who goes with him.”

In the end, the exercise proved as educational for the parents as for the kids. “We had an ideal picture about how this would operate, but it didn’t turn out that way,” says Victoria, 47, a psychologist, certified financial planner and author of Couples and Money (Bantam, $17.95). “But we’re glad we did it,” adds her husband. “Now, when the kids could take their money out, all five have left it invested.”

Reporter associate: Rhonda Johnson

THE FIVE STAGES IN RAISING A MONEY-SMART KID

Here is □ model program for educating your child about money based on a consensus of the experts we consulted. The ages are approximate, depending upon each child’s maturity.

BEGIN DISCUSSING MONEY.

Take your children on shopping trips to buy groceries or gifts. Talk about how you weigh choices and decide. Give them an occasional 50¢ or $1, and ask them to pick among three or four choices.

INTRODUCE AN ALLOWANCE.

Start with 50c or $1 a week. Don’t link the money to household chores; simply assign chores as part of your child’s family responsibility. Discuss what can be done with the money. Give the money every week at a set time, without fail. Don’t take it away for punishment.

GIVE ANNUAL RAISES.

Increase the child’s allowance and responsibilities each year on an easy-to-remember date like July 4, and provide opportunities to earn extra money by doing additional chores. Help your child to open a savings account and talk about what to save for.

START TO SET GOALS.

Invite your child to join you in family budget conferences. Talk about long-range goals, such as college. As a savings incentive, match any amount that he or she contributes to a savings account.

PUSH THEM FROM THE NEST.

Help your children attain independence by opening a checking account with an ATM card. Consider giving them a family credit card, provided they pay their own bills. Encourage them to get outside jobs. And include them in decisions about paying for college.

EDUCATION

Extra help

• Children and Money: A Parents’ Guide, a book by Grace W. Weinstein, (Signet, $4.50)
• Teach Your Child the Value of Money, a book by Harold and Sandy Moe (Harsand Press. $9.95: «00-451-0643)
• ‘You and Money,” a free kit geared for fourth- to sixth-graders from Fidelity Investments (800-544-6666)
• Classroom Guide to MONEY, a monthly aid for high school and college teachers who use Money in the classroom. For a free sample, write to the Money Education Program. 10 N. Main St., Yardley, Pa. 19067.
• Penny Power, A bimonthly magazine for kids, published by Consumers Union (P.O. Box 51777, Boulder, Colo. 80321: 800-525-0643).
• Federal Reserve Bank of New York offers colorful comic books about money, banks and credit free from the Public Information Department (33 Liberty St., New York, N.Y. 10045:2I2-72O-6I3O).
• Young Americans Bank (250 Steele St., Denver, Colo. 802′)6: 303-394-4357) offers savings and checking accounts for anyone up to age 22. Also, an activity book ($14.98), How to Teach Children About Money, with suggested field trips.