Money guru shares 5 ways to set your kids up for financial success — and some tough love will be necessary

• Some parents fear their kids will waste money, sink into debt, and never move out.
• Teaching personal finance lessons to young children can set them up for success, Mark Berg says.
• The financial planner tells parents to foster independence in their kids even if it's uncomfortable.

Many parents worry their children will grow up to be bad with money, wind up in debt, and end up moving back home.

Mark Berg, who founded Timothy Financial Counsel in 2000, says there are steps parents can take to avoid that fate.

Here are five of Berg's top tips for setting kids up for financial success which he outlined on a recent episode of Morningstar's "The Long View" podcast.

1. Start with the basics

Parents can start teaching their children about personal finance when they're as young as six or seven, Berg said. They can explain how money works, give their kids an allowance and pocket change for doing chores and odd jobs, then encourage them to save up for a special purchase as a lesson in the rewards of working and delayed gratification, he said.

Limiting spending money also teaches kids about opportunity cost, reinforcing the idea that money is scarce and there are constraints on what they can afford.

Berg said that using physical currency helps kids grasp the concept of money. It's visual, and they can hold it in their hands and hand it over, the veteran financial planner said.

"It really helps them understand the true cost and trade-off" with money, he said, "whether it's buying ice cream or going to the store to buy a toy."

"It's also healthy to say no," Berg added. Families should "not just always give, even if you have the means to do it, because that's not reality."

2. Build good money habits

Once their child receives their first paycheck, parents can explain how much has gone toward paying taxes, and help them budget the rest between buying things they want and saving for college and retirement.

Berg advised opening a checking account for children early on, then getting a credit card as soon as possible to establish a credit history. That can give them earlier access to the bank funding they'll likely need for a big purchase like a first home.

He emphasized that kids should pay off their credit cards as they use them to avoid carrying a balance and paying interest or late fees.

3. No coddling

Parents should aim to turn their grown children into self-reliant adults without delay, Berg said.

"They need to be independent of their parents' lifestyle and creature comforts, and need to work through those hard decisions from an early age of the trade-offs of spending versus saving," he said.

Berg advised parents to stop paying for things like their kids' cell plans and car insurance as soon as possible. He recalled a client whose kids moved back home after college, and they only offered them six months of rent-free living before charging $400 a month for the next six months, then double that for the next six months, and so on. Parents can even give all the rent payments back as a lump sum when their child moves out, he added.

The veteran financial planner suggested parents be up front with their kids about how much they can contribute to their college funds. That can help guide their decisions about what schools they apply to and what financial aid they seek.

Similarly, if parents are paying for a wedding, they should set a clear budget even if it forces their child to compromise between the perfect dress and the ideal venue, Berg said. If they loan the money to their kid to buy a house, they need to be strict in getting repaid, he added.

Letting your teenagers work can help foster independence and good saving habits, teach them to manage their time better and be more efficient with their schoolwork, strengthen their character, and better appreciate their lifestyle as they're partly paying for it, Berg said.

He made an exception to his tough-love approach when it comes to family holidays and similar occasions. "I really think that family time, especially with aging parents and even grandparents, if they're still living, is really a great investment in the family dynamics — I think there's a lot of health to that."

4. Do no harm

Berg underscored that parents should never put their children in a tough financial position.

"I'd say the No. 1 principle is don't create a circumstance where your help creates a hurt," he said.

Berg gave the example of buying a home for a child who can't afford the maintenance and property taxes, and said those kinds of purchases "really lose the joy."

5. Pass wealth down early and carefully

"Start in the shallow end and work toward the deep end with your kids," Berg said, encouraging parents to give small amounts to their children over time instead of a lump sum after they die.

Parents could match the money their child makes from a summer job and put that amount in a savings account for them, he said. They could give money each year but earmark it for education or retirement to avoid lifestyle bloat or removing the incentive to work. They might even give a larger one-off amount as a test.

"It really gives you a snapshot, a small example of what their decision thinking will be like when they eventually potentially receive that much, much larger number of an inheritance down the road," Berg said.

"And it gives an opportunity not for the parent to micromanage, but the parent to observe the decisions that they make, be available to have conversations, really help guide and be there on the journey, on the path to help them make good financial decisions."