5 tips for raising money-smart kids

Plenty of adults get into financial trouble through no fault of their own, especially in a sluggish economy with double-digit unemployment. But often, those who learned valuable financial lessons at an early age fare better when times are tough.

For instance, when credit counselors at CredAbility help their clients develop budgets, make housing decisions and find ways to start saving, "the majority of the clients we serve always say, 'I wish somebody had taught me this when I was younger,'" says Jessica Cecere, regional president of the South Florida branch of CredAbility, a national nonprofit credit counseling and education organization.

That's why it's important for parents to be intentional about imparting their financial values and good financial habits to their kids. "While schools can reinforce these lessons, it really needs to come first from the parents," Cecere says.

It's never too early to start talking about money with your kids, says Stephen Rhodes, a former teacher, father of four, and a CFP and managing partner at Strategic Partners Wealth Management in Creve Coeur, Mo. "Begin by explaining to them why you work -- to make money for the family," he says. Explain to them the reality that the items they use each day all cost money, and you must work to make and save enough to make sure all things are paid for."

The trusty piggy bank is a good tool to use to help children learn to save, or you can choose to open a bank account in their names. "When children are 5, 6 and 7, they can't really understand the idea that one day something may happen, and you may need to rely on your savings," says Cecere. "But if somebody has a habit of saving and they always have, they will get that when they need it."

Rhodes suggests using three separate piggy banks for each child and labeling them "give," "save," and "spend." When you give them an allowance, have them divide their money into thirds to learn the importance of all three.

Rather than spend your shopping time saying "no" to everything your kids want to buy, let them get involved in the shopping. It's a good way to learn how much money is required for various everyday items and begin figuring out the importance of spending wisely.

A farmer's market is an ideal place to teach a family shopping lesson, says Cyndi Finkle, a mother and the blogger behind "Practical and Meaningful." "Send (your kids) to one section of the market with a list of fruits and vegetables that you want and give them $20 to spend," she says. "They will ask questions of the vendors, figure out how much of each thing they can get and start to understand the principles of money."

To put yourself in your children's shoes, think about how it feels to go to a new country and become accustomed to the value of a different currency, Finkle says. "After a couple of purchases, you start to understand and use it more freely."

If you want kids to learn to be smart with money, you must give them some freedom, says Susan Tordella, a parenting coach and the blogger behind "Raising Able." If you give an allowance, "allow them to spend their allowance however they choose," Tordella says. "They can buy school lunch every day and have nothing leftover, or they can buy once a week and save for a family vacation."

Finkle suggests taking your kids on a personal shopping trip with a specific amount of money to spend and no buying guidelines. "They will eke out every cent, they will be more specific on their wants, and they will end up buying more of what they really want than what their impulse buying would be," she says. To make the trip more educational, make your kids do their own math. "If they come to you in the store and want to buy three things, hand them a paper and pencil and have them add the prices together. Give them a big bill and ask them how much change they should expect -- based on the total amount of the items subtracted from the amount of money they have. These are simple, practical and meaningful money lessons."

Every child will make mistakes, but parents must let those mistakes teach children the lessons they need to know, Rhodes says. "If, for example, your child was saving for a big purchase but does not have all the money, don't give in and give it to him or her. Instead, make sure they work for it or, dare I say it, make them wait," he says.

If you want to help them, rather than simply giving them a handout, take the chance to teach them about borrowing and lending. "Lend them the money and then explain that when it is paid back, they will have to pay you more," Rhodes says. "Helping them to learn the discipline of money management while they are children making only $6 is far better than them learning as an adult when they are making $60,000."

If your kids have spent money unwisely and beg for your assistance to refill the coffers, "parents must not feel sorry for the children and bail them out of a penniless state," Tordella says. Instead, use the opportunity for a teaching moment: "Encourage them and ask, 'what could you do next time to plan better?'"

Model good habits