Plastic has replaced cash, credit is used and abused, and machines have replaced bank tellers, so it’s no wonder our kids don’t appreciate the value of a dollar. And although many of us are feeling the financial strain this year, our kids probably haven’t noticed because we don’t talk about it. That’s where a lot of parents go wrong.

“Nobody wants to talk about money,” says Laurie Campbell, Executive Director of Credit Canada. “They’d rather talk about sex than money. The truth of the matter is that it’s an important life skill. It’s something you need to talk to your children about.”

So what can you do now to raise your child’s money I.Q.? Campbell offers these tips:

  • Lead by example. “Parents who are poor money managers often have children who are poor money managers,” says Campbell. So the first thing to do is improve what you are doing.
    • Keep and follow a household budget. 
    • Pay with cash when you can. 
    • Talk about your budget with your kids.
    • Keep track of your spending at all times.
    • Save for big purchases and buy them only when you have enough money saved.
  • Be honest about your finances. “It is important to not shield your children from what is going on in your financial life,” says Campbell. This means explaining not only your income, but your expenses as well. If you just tell your children what you make, they’ll assume you’re loaded. Show them how much it costs to maintain a household. But, be sure to keep all talk age-appropriate and tell your kids this is a confidential family matter.
  • Show them where the money comes from. Many kids assume money comes from a bank machine and you can get as much as you want whenever you want. Explain that you earn the money in the bank by working and they will too some day. Give them the opportunity to earn money by giving them a base allowance and adding to it when they do more chores around the house.
  • Explain bank accounts and what they are used for. Take the kids inside the bank and show them how it’s done the old-fashioned way.
  • Do not assume they’ll learn it elsewhere. Money management is not taught in school. Kids need to learn it from you.
  • Start young and keep it positive. Kids as young as three can start learning about the different shapes of coins and what they’re used for. They can even learn how to pay at the store. Keep all lessons around money positive. Do not yell, dictate or criticize because that could teach your kids to have a negative association with money.
  • Keep it casual. There is no need to sit your kids down and teach money skills in a scheduled way. Give little lessons on a daily basis. Use opportunities like shopping or paying bills to teach money skills.
  • Teach the difference between ‘wants’ and ‘needs’. We ‘need’ food and shelter. We ‘want’ Playstation 3. Let your kids see you pass up your wants because you can’t afford it—like a new television or a pair of shoes.
  • Teach your kids to save. Kids need to know that money isn’t just for spending, it’s for saving too. Talk about things you are saving for, like retirement or your child’s education.
  • Treat money with respect. If you teach your kids about saving and spending wisely, they’ll learn to respect money.

Talking to your kids about money and teaching them how it works does not have to be scary or stressful. And if you deal with it honestly and with a positive attitude they will do the same.

Read more advice on teaching kids money basics.

Laurie Campbell and Alison Griffiths came to our studio to discuss kids and money with's Cheryl Jackson.