Kids and Money: I wish my parents had taught me some budgeting skills as a child. Now that I have my own children, I hope to teach them these skills before they make similar financials mistakes that I have made. What are some age appropriate tips that you use to teach your children how to save and spend wisely?

First of all, I cannot stress enough the importance of teaching your children the value of making wise financial decisions.  Teaching children the value of money, of saving it, and of spending prudently will be a huge factor in their choices later.

A lot of parents are afraid of saying "we can't afford that" to their children.  It seems like such a grown up burden to put on little shoulders.  But it's really not.  The boundaries of money are like the laws of physics.  You have no problem teaching your children about the laws of gravity or telling them they can't jump off the roof.  The rules of money are equally valuable.  And if you don't teach your children that money is finite and life has boundaries, who will?  Do you want your child to be away from home and living on their own when they first discover that they can't afford everything they want in life?  This is what happens to a lot of kids.  Many parents of college freshman have stories of their children coming home with piles of credit card debt and unpaid bills because their first taste of freedom led to financial slavery.  Don't wait to teach your children about money, do it now.

As for how to teach them, like anything else, it has to be part of their every day life.  When my kids ask if we can just go out to eat, I let them know that for the price of even a "cheap" dinner out at a fast-food restaurant, I can feed our family dinner at home for several nights.  When you do go somewhere or purchase something that they enjoy, point out that the reason you can afford to do this is that you haven't spent your money on other things.

No one wants to say no to their kids.  Who doesn't want to give their children what they want?  But an even more valuable gift for your children is practice learning self-restraint and delayed gratification.

When it is time to buy something your child gets a say in (a friend's birthday gift, a pair of shoes, etc.) take them to the store, state your allowed budget, help them to find a few options that fit within that budget, and then let them choose.  If they find something that they really really want that is more expensive than the amount you stated in the beginning, hold firm, and explain that while those are some really awesome shoes, they just cost too much, and why don't you look at this great pair over here?

While walking through the store, my kids, like most all kids, are constantly pointing at things asking "Can we get this?  Can I have that?"  I respond one of two ways.  The first is to say, "Nope, sorry, we budgeted enough money for the things on our list.  If we bought that, we'd have to put something else back."  This teaches the priceless lesson that the amount of money a person has at their disposal is finite, and can be used up.  My other response is, "Absolutely!  Do you have enough money to buy it?"  Rare is the day when the random enticement is valuable enough for them to spend their own hard-earned cash on it.  (*Watch for a post coming soon, concerning kids earning their own money.)

If your child has some of their own money to spend, you can guide them toward good purchases, but make sure the final choice is theirs.  If they buy something that turns out to be a huge disappointment, it may make them sad for a little while, but will teach a great lesson in the long run.  They will see the importance of making thoughtful decisions with their money and help curb future impulse shopping.

Help your children to set achievable longer-term financial goals.  I'm not talking college funds here, although that definitely has its place in your family financial plans and discussions.  I'm talking about choosing to save up for a few months for one item, rather than blowing every dollar as it comes.  Then, as they earn their money bit by bit, you can encourage them on their way to that Big Purchase.  Help them to control their finances, and then remind them of their self-restraint when they do finally get to buy whatever it is that they've been saving for.

Last of all, be a good example.  Let your kids see you show restraint at the store.  This doesn't mean you are always complaining that you can't afford things (that makes you the victim of your money).  You must point out the choices you are making.  I am purchasing this because it is on sale.  I am choosing this item over this other item because it is better quality.  Also point out where your money comes from.  I am going to work today to help earn money to pay for our house.  I am working an extra day this week because we want to earn extra money for our vacation.  These little conversations in everyday life will help build the foundation of a healthy relationship between your children and their money.

Kate