Show them the money
Between the bills and the plastic you take in and out of your wallet, it's no surprise that your child can get confused about what's what, and even think that credit cards have magical, unlimited buying power. In fact, most kids under 7 just won't get the connection between a card and the money behind it.
That's why it's a good idea to use cash for some of the routine purchases you make when your child's along, whether it's fast-food treats or play-park admissions, and count out the dollars for her to see.
You don't have to give up the convenience of your credit cards, though. Kids also need to learn how to use plastic wisely. "Once they're out of high school, kids will be using credit and debit cards, too," says Shannon Plate, a family budget counselor and author of Degunking Your Personal Finances. So start talking about them now.
When you use a debit or credit card, let your child see you record your purchases, just as if they were checks. Show her how you subtract money from your balance every time you buy something. This is especially good to do with 7- to 9-year-olds, who are heavily into adding and subtracting. Do the same thing when you withdraw money from an ATM, even with kids as young as 3. "Say 'I just took $60 out of my bank account -- and this is what it's for.' Show them there's a plan for the money. You're not taking it out just for the sake of having it," says Plate.
Talk about how much things cost
Whether it's a toy or a T-shirt, kids should have a ballpark idea of the price of things in their lives, says Craig Israelsen, Ph.D., a professor of family finance at Brigham Young University, in Provo, Utah. After all, prices help kids understand why we can immediately buy two 99-cent cans of soup but we have to save for a $99 talking toy.
Borrow your child's toy cash register to talk about what you spend. Israelsen and his wife used play money to show each of their seven children, starting at around age 6, how much was in Dad's paycheck. Then they showed them how much they took out for groceries, clothing, and other essentials. "By about 12, our kids realize, 'Mmm, most of it's already gone,'" says Israelsen.
For a younger child, you can keep it simpler (and your salary more private) by subtracting the costs of a day's errands (milk, gas, stamps) from a "Today's Expenses" fund of, say, $40.
In most American households, parents don't talk enough about finances with their kids. A whopping 76 percent of the Parenting MomConnection survey respondents say their kids have never asked how much they earn -- a sure sign that money isn't a frequent conversation topic. Family-finance chats are a good thing, says Israelsen. Just be careful not to talk about your child's costing money, as in "Paying for your school clothes made us go over our budget."