Money doesn’t grow on trees, a fact some children don’t understand. I heard a story once from a co-worker. Her daughter had asked if she could buy something, and the parent said no, that she didn’t have any money. Her daughter told her to go to the ATM to get some more. She didn’t understand that you have to have money in order to withdraw it from the cash machine.

It’s our responsibility as parents to teach our children how to be responsible with money. We need to set the example so our children will learn by watching us. Explain to your children about saving for things they want to buy, using coupons at the grocery store, and why you buy things at the mall when they are on sale instead of at full price.

A good way to start to teach fiscal responsibility is to have your children open up a savings account. My children aren’t even two years old yet, but they each have their own savings account. Any gift money we receive for holidays or birthdays goes right into their savings account. When they get older and understand the value of money, we are going to allow them to take a portion of the money they receive as gifts to buy something special, but put the rest of the money in the bank. You can make it a fun day by taking your child to the bank, helping her fill out the deposit ticket, wait in line with her and let her do the transaction under your watchful eye.

An allowance is a great way to teach children about money, as well as to get across your values regarding money. Once your child is old enough to understand money, the different denominations, and how to count she is ready to get an allowance. Decide in advance what the allowance is for. Is it for your child to buy special treats, or do you expect your teenager to purchase clothes, CD’s or the like from this allowance? Discuss with your child what he/she is expected to use the money for and help them to use the money in a wise fashion.

Don’t spoil your kids by giving them every material thing they want. If they want a special purse or pair of jeans that you think is too expensive, ask them to chip in their allowance towards the purchase.

Explain to your children the pitfalls associated with credit and borrowing money. You can use a real world example if your child wants to purchase something expensive and doesn’t have the money saved up from his allowance. Let your child borrow the money from you, but charge interest. Explain to him how much more money he will have to pay back in the long run, and how long it’s going to take him to repay it. Chances are your child will change his mind and wait until he has the money saved on his own to buy it.

It’s never too early to teach your children about money and how to respect it. If you set a good example for your children, your children will model your behavior and will come to value money as they grow up.