Experience is the best teacher. It doesn't matter whether your kids can explain the concept or understand the financial lingo. What's important is that they understand that earning interest gives them extra money that they didn't have to work for.

If your kids earn an allowance, you've got a built-in opportunity to teach them the value of saving.

Here's an example: Stella is 6 years old, and gets $6 of allowance money every week. Her parents tell her that at the end of every month, they'll give her $1 for every $10 in her piggy bank. Because Stella is saving up for a video game, she puts away $11 in the first month. As her parents hand over the $1 of "interest," she starts to get the idea.

Even more exciting is the day Stella's parents show her that they're paying interest not just on the money she's put in, but also on the interest they paid her in previous months. That "free" money is making her more money.

There are lots of different ways to teach these lessons to your kids. How you do it could depend on how old they are (younger kids love coins), how big their allowance is (the interest should be given as an extra coin or bill), and how long you want the lesson to take (weeks or months).

No matter how you do it, there are a few guidelines you might want to follow:

• Be clear about the rules, and stick to them.
• Pay the interest in cash, using coins for young children.
• Explain what you're doing along the way.
• When you get to the point where you're paying interest on the interest, take the opportunity to explain why it's such a good thing.
• Help your child keep her long-term financial goals in mind even while shopping, by gently reminding her of her savings "account."

Taking the time to teach your kids about interest now can help instill in them a love of savings that will help them the rest of their lives.