Start by painting a wall in a family room or a child's bedroom with magnetic paint; these are acrylic, latex water-based primers provide the perfect space for using magnetic letters. After the wall has been primed with the magnetic paint, cover it with any color you like. Make as large a work area as possible.
Use colored masking tape to create an "alphabet house," a place where all letters not being used are stored.
For the youngest child, put only magnetic letters A, B, and C into the alphabet house. After talking about the letters, ask the child to find all the A's in the alphabet house and take them out for a walk on the wall. Continue, using a few letters at a time, as a way to teach the alphabet.
For the beginning reader, create a word-of-the day on the alphabet wall and have the child re-create the word directly under the one you have made. Start by using words that are simple nouns, such as car or dog. Then let kids draw simple pictures that match the words (or cut them from magazines) and use magnets to attach them to the wall.
Play a rhyming game by making a word with a common ending sound, such as "at," and then take turns replacing the initial sound with letters, saying, "Now this is cat," "Now this bat." Challenge the child to increase the speed at which he can make changes. Allow for nonsense words like "zat." They just add to the fun and still allow kids to practice the skill.
Invest in a few 12-inch metal rulers to use for games and activities. An important early reading skill is understanding that words are read from left to right; by placing the letters in the confined space allowed by the ruler, kids get the idea of one letter following another in a sequence. Start by asking the child to pick out the necessary letters and make her name on the ruler.
Use rulers to play a competitive game in which children try to make words after picking letters blindly from a bag. For younger players, simply place a word made from some of the letters in the center of the table. Using limited letters in the bag, kids try to be the first player to duplicate the word on their ruler. For older kids, put all the letters in the bag and challenge them to pick up and discard until they are the first player to make a six-letter word on their ruler.