My son Danny is 16 now, but I still vividly remember a particular shopping trip with him when he was 7. We were in the electronics aisle at a discount department store. I had my back to him for a few moments while I tried to figure out which camera battery I needed. When I turned around, I saw Danny plopping a 12-inch television into our shopping cart.

"I'm going to buy this," he announced.

"We don't have the money for that," I quickly replied, and then picked up the TV to put it back on the shelf.

Immediately Danny hollered, "But Mommy, I have the money!" Then he opened his billfold to show me his wad of handmade $1, $5 and $10 bills.

Earlier that day, Danny, who has always been quite an artist, had used some of the currency in my wallet as models to meticulously draw copies of the bills on white construction paper. He then colored his bills with green and black pencils and cut them out. They looked surprisingly like the real thing.

I had assumed he was going to use his homemade currency to play "store" with his younger brother. But on this shopping trip, I realized that was not the case at all. Danny thought the way you "made" money was literally by drawing your own.

Time for a talk about money

The whole thing really took me by surprise. I would have never thought Danny had those kinds of misconceptions about money. It made me realize it was time to have some talks with him about money—how it's earned, how to use it wisely, and why it's important to be good stewards of what God has given us.

What about you? Do you talk to your kids—teens and younger children alike—about money matters?

We're told in Deuteronomy 6:6-7: "These words, which I am commanding you today, shall be on your heart. You shall teach them diligently to your sons and shall talk of them when you sit in your house and when you walk by the way and when you lie down and when you rise up" (New American Standard Bible).

The Bible has a lot to say regarding how we should be using our money. It follows, then, that we should be passing these financial principles on to our children and teaching them at least the basics of personal money management.  

The current worldwide economic downturn adds even more urgency to doing so. "Kids know we're facing tough times, but they don't always understand how we got there," states Karen Varcoe, Ph.D., consumer economics specialist with the University of California Cooperative Extension. She believes the vast majority of parents are not talking with their children about money management. Instead, kids are getting their "lesson" in personal finances by simply watching their parents.

Dr. Varcoe continues: "What they're seeing is most everything being purchased with a credit card or check. They don't see cash very often. This can give them the false impression that the family has an endless supply of money. And indeed, when we use credit cards instead of cash, we generally spend more than we should."

This kind of overspending not only sets the wrong example for kids, she says, but was certainly one of the root causes of the present global economic crisis. It's also the reason so many people found themselves in dire financial predicaments this past year when the U.S. economy nose-dived.

"You need to be telling your kids how to save money and spend it wisely, and why it's important to not misuse credit, so that their future financial stability isn't in serious risk, as is the case with so many people today," she urges.

This teaching can begin as early as age 3 or 4, or whenever your child begins asking about money. Your lessons will be very basic for preschoolers, perhaps just explaining that you have to work hard for your money and that it doesn't "grow on trees." As your children grow and mature, you can gradually get into more in-depth instruction.

What if your kids are teens and you've never talked with them about money management before? "It's never too late to have these kinds of conversations," Dr. Varcoe says, "but the sooner you do, the better."

Here are some suggestions to get you started:

1. Provide children an income to manage.

Children cannot learn money management unless they first have some money of their own to manage. You could provide that through some kind of allowance or through payment for certain tasks. "If your children are spending your money, they're not going to think twice about spending it. But if they're spending their own money, they're going to make much better purchasing decisions," says Erica Sandberg, a San Francisco-based family money management consultant.

She suggests you provide this income at fixed and regular intervals, such as on a weekly or biweekly basis. Make it a large enough amount that your children can afford a couple of inexpensive items at the dollar store, but not so much that they're able to buy a new video game without saving up for it.

How old should your child be for you to start providing such regular income? While preschoolers can start to be educated about what money is, children are not develop-mentally ready to learn how to manage it until they reach age 6 or 7, according to money coach Janet Bodnar, author ofRaising Money Smart Kids (2005).

She believes that is the best age to institute a small income. "Not only are children more mature, but they're also learning about money in school," she says. "So they'll know that a $1 bill equals four quarters, and that their $3 allowance will buy a small tub of popcorn, for example."

To prevent children from developing an "entitlement mentality," parents can make allowances conditional—meaning kids get their allowances only if they have made their beds daily, kept their room clean or done other routine chores. Many parents, however, take the approach that children should do routine chores without pay as part of their responsibilities as family members.

Either way, you may also want to give your children opportunities to earn an allowance or additional money by doing household tasks other than their regular chores—such as raking leaves, shoveling snow, washing the car, weeding the garden, cleaning out the basement, washing windows, etc.

This will teach your children to link having money with work. In addition to helping instill a valuable work ethic, chances are they're then going to be more careful about how they spend that money because they know how hard they worked to receive it.

2. Show them how to budget.

Once your children have a regular income, you can begin to teach them to live on a budget. Ideally, set aside some time when you can sit down with your kids and have a focused discussion about budgeting without any interruptions.

Start by explaining that a budget is a plan for how you are going to use your money. Help your kids understand that budgeting is not just sound advice from secular financial advisers, but that the Bible actually points to the necessity of budgeting. You could turn to Proverbs 16:9; 21:5; 24:3-4; 27:23-24 and Luke 14:28-30 for some good overview scriptures. 

Talk with your children about why it's important to live within your means, tithe and save a regular portion of your income. Discuss the downside of overspending, borrowing and getting into debt.

Read Leviticus 27:30 and Malachi 3:8-10 to your children to show them that God expects us to tithe (see the Q&A on page 29). Use Proverbs 21:20 and 30:24-25 as a starting point for talking about why we need to save some of our income. Read Proverbs 22:7, 26-27 when discussing the problems of getting into debt. When you go over these verses with your children, explain what they mean in everyday terms and how we can apply these principles in our lives today.

If you have a budget yourself (and hopefully you do!), show it to your kids, whether it's on your computer or in a ledger book. Help them see what you have in terms of monthly income, what bills need to be paid each month and what will be left over for discretionary spending. This will give your children a more concrete understanding of what it means to budget.

After you've explained some of the basics about budgeting, help them devise their own budgets. First, come up with a figure for how much income they normally have each month through allowances or earned money from household or part-time jobs. Then, help them figure out what percentages of their income should go to various categories—tithes, charitable donations and gifts, spending money, short-term savings, long-term or college savings, etc.

Other than tithes, the percentages for the other budgetary categories are variable. Savings should definitely be a high priority though. Shirley Anderson-Porisch, a financial adviser with the University of Minnesota Extension, encourages kids to save at least 50 percent of their money. That could be divided up between short and long-term savings.

"When children save their money, they learn the discipline of self-control and delayed gratification—vital lessons in today's economic climate," she says.

If you have young children, what works well is to give them a jar for each of their budgetary categories. That is a system that Eva Miller has adopted for her 8 and 10-year-old children. When they receive money, they distribute it into each of the jars, according to the designated percentages.

"Once they put money in their tithe or college savings jars, that's where the money stays—until it reaches $20 and then the tithes will go to our church, and the college money will be deposited into their savings accounts at the bank," she said. "They also have jars for short-term savings, and they'll use that to save up for things like a new game, and 'fun money,' which is what they use for everyday expenses like buying a candy bar at the grocery store."

If you have preteens or teens, you can set up their budgets on the computer or get them their own ledger book. Have them record their expenditures each month, and keep a running total of how much they've spent in each budgetary category. This will help them see on an ongoing basis if they are spending too much.

3. Use everyday opportunities to teach your kids about money.

Life brings countless opportunities to teach our children about money. Consider, for example, the story mentioned at the start of this article. That situation was the perfect way to begin a discussion with my son about money. While we were still at the store that day, I took Danny aside and spent a few minutes explaining to him how my husband and I obtained our money and that we didn't have an unlimited supply. (I also explained what it meant to counterfeit money!)

You will probably have your own "teachable moments" that you can turn into money-management lessons. If your child notices you paying your restaurant bill with a credit card, that is the ideal time to explain how credit cards work—that it's in effect a loan that must be paid back within a month to avoid interest charges. Preferably you already have the money to set aside as repayment so that it's just a matter of shifting funds and not borrowing what you don't have.

When your credit card statement arrives in the mail, show it to your kids. Let them see how interest is computed and compiled, and explain why it's important to not rack up credit card balances that can't be paid off immediately, so as not to waste money paying interest.

If your children are with you when you withdraw money from an ATM or write a check at a store, that's an opportunity to explain how checking accounts work. If your children are with you on trips to the supermarket, talk about your purchases as you shop and what makes something a "good buy."

If you're watching television with your kids and a commercial makes an outrageous claim, use this moment to talk about how to evaluate advertising. If you get "too-good-to-be-true" offers in the mail, that's the time to talk with your children about scams and that "you don't get something for nothing."

These kinds of teachable moments are effective, because they are real-life examples. Your children can see for themselves how a financial principle you are trying to teach them can be applied in everyday life. That makes your lesson seem much more pertinent.

4. Learn to say "No" to your child's "wants."

Children are usually quite adept at pleading with their parents for toys, electronic gadgets, designer clothes or other nonessential items. When they do, it's not always easy to tell them no. Most parents don't want to be the bad guy, nor do they want to deprive their kids of things others have. Still, Sandberg says, "You shouldn't cave into your kids' every whim—even if you can afford to buy them what they want, but especially if you can't."

Learning that you don't get to fulfill all your wants is an important life lesson. "Children need to experience some disappointments, because that's part of life," says Michael Gutter, Ph.D., family financial management specialist at the University of Florida. He suggests you explain to your child that there are things you would like to buy, too, but can't afford. "That way he knows he's not singled out; he's not the only one not getting what he wants."

Even if you can afford to buy these kinds of items for your children, you should still be very selective about how many of their requests you grant. "If you overindulge your children, they're not going to know what it's like to have to work hard and save up for things they want," Sandberg says.

One way to respond to pleas for nonessential purchases is to tell your child he or she cannot have the item now, but could request to have it as a gift for some special occasion. Or, if you have teens or preteens who are old enough to pay for a lot of their "wants" themselves, you can encourage them to either save money from their allowance or do extra household chores to earn the money.

If it's a matter of your teen wanting to spend more for a "need" than you think is reasonable—e.g., he wants the $100 skateboard shoes when you've only budgeted for a $50 pair of sneakers—you could tell him you're willing to pay the amount you had earmarked in your budget, but require him to come up with the difference. "This will help curb feelings of entitlement," Dr. Gutter says, "and make your teen personally responsible for achieving his desires."

5. Watch your own example.

It was mentioned at the outset, but it's worth repeating: Your children learn a lot about money just by observing you. They watch what you do at the supermarket, department store, bank, mall, etc., and tend to mimic your financial attitudes, values and behavior. Depending on what you're doing, they could be learning some very good lessons or some that are not so good.

Luke 6:40 declares, "Everyone, after he has been fully trained, will be like his teacher" (NASB). If you shop to entertain yourself or make a lot of impulse purchases, your children are probably going to see that as normal behavior and do the same.

On the other hand, if you always go to the grocery store with a shopping list or only make major purchases after you've saved up for them, your kids are likely to adopt those practices.

You need to model good monetary habits. "If you set the wrong example, any talks you've had with your children about money management will fall on deaf ears," says Anderson-Porisch. Your children aren't going to be careful with their money if you're careless with yours—even if you tell them to do otherwise.

That's not to say that talking with your children about personal finances isn't important. As has been stated throughout this article, it most certainly is. Your children need instruction and guidance from you about how to budget, save and shop wisely. But it's your example—your showing them that you're carefully managing your own money—that helps them see that these steps are more than just an academic exercise and that they really do matter.

Clearly, you may need to change some of your own spending habits so that you are modeling the right behavior. But with today's economy as uncertain as it is, that's something you should be doing anyway. Now is the time to cut out unnecessary purchases, pay off credit card debt and build up your savings—for the sake of your family's financial well-being.

The fact that your children are watching your example makes these steps even more vital. They are learning lifelong money habits from you—both in terms of what you say and do. They're looking to you to show them how they should manage their own household finances someday. It's up to us, as parents, to make sure our children are developing good money habits.  GN