Today's parents face many challenges, including teaching their children good financial habits. These four fiscal lessons are a good foundation for your kids' sound money management in the future.
Differentiate between needs and wants
The first lesson is often the hardest: Learn the difference between basic and discretionary spending.
"Parents need to explain that things you don't think about, like electricity and water, cost money," says Fitzgibbon. "When kids ask for a new video game system, that goes into the 'want' category, not the 'need' category."
Statistically, fewer and fewer parents are directly discussing the difference between needs and wants. Capital One reports that in 2006, only 43 percent of parents had spoken with their children about the difference, a figure more than 20 percentage points lower than that of the year before.
Neale S. Godfrey, author of "Money Doesn't Grow on Trees: A Parent's Guide to Raising Financially Responsible Children," says parents can help kids understand basic-needs spending in two ways.
First, incorporate children into the spending process by showing them exactly how much it costs to run a household. "Pay yourself in cash for the month, then say 'OK, this is the money,'" says Godfrey. "'It looks like a lot, but here's the tax bracket we're in, so count out money for the tax man. Then there's gas, utilities, mortgage, car, etc.' It goes quickly."
Once your children understand the money that goes into running a household, incorporate them into the savings process by encouraging them to help reduce household spending. Godfrey says she shows her children the household electric bill, then brainstorms with them on ways to reduce electrical use. If the next month's bill is lower, Godfrey gives her children a portion of the difference in cash.