How do I correctly adjust the shoulder harness straps to fit my child?

Press the webbing adjustment button while pulling out the shoulder harnesses to the proper length. The shoulder harness height must be even with the child's shoulders in both rear-facing and forward-facing modes. Make sure the space between the child and the shoulder harness straps is about the thickness of one hand. (Pages 11–12)

From the official Graco IM-000922E Infant Car Seat manual, page 12

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