1) For the “saved” money, offer to pay your child what seems like an absurd interest rate. Children generally are not that patient, so they generally don’t appreciate saving and interest at the 3% your bank gives you… But what if you gave 10% per month? Would it really cost you much? Higher rates will get the point of interest and compounding across much faster to a young child, even at an age where they don’t understand the math. Odds are they still won’t save that much up before buying something, so the interest won’t cost you much, and as they get older, you can lower the rate you pay to something more reasonable.

2) They’re naturally going to want toys… but think of alternatives to what they want. If they want a toy plane at Walmart that costs $10, why not suggest MAKING a toy plane with dad. You can make an heirloom wood toy pretty easily with just a few hand tools… that would last longer, not cost much more if you use cheaper woods, and give the child what he really NEEDS – quality time with parents… and after that, they still have the toy….

Debt vs the Dream Car

http://forums.wsj.com/viewtopic.php?t=932

I think Money magazine did a thing on teaching kids and using family money. The created their own currency and the kids had to buy their meals, their bed, getting their clothes washed and things like that. It taught them how to save, spend, and do thigs for themselves. I am not sure how old the kids were, but it might be a good start for your son.

One book that has helped me alot with teaching my son is The Financially Intelligent Parent. It really makes you think about how you are portraying money to your kids.

The youngest obviously isn’t as “up” on it as the next one and so on. We try to encourage using your money for what you really want and not just some fad. Something new will be once they make a purchase we want to revisit it in a month or so to see if they are still using the purchase.

Mrs. Micah – If I heard that as a kid, I would be scared too. I think your mom has the right idea.

And to a little kid, that’s terrifying. His mom meant what she was doing for the best and I’m sure she was quite frustrated with his dad, but it wasn’t good for him to know how deep they were in debt.

Of course, there were other parts he couldn’t avoid knowing, like that collections agencies called and left threatening messages.

I think the best thing is to model good financial practices to the kids. My mother told me that they had some credit card debt (as a way of showing that even smart people can get into debt) but that they were on top of paying it off so I didn’t have to worry.