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Here is a great opportunity to introduce a lesson on the cost of credit. Do some more math as you figure out how much interest will add to the cost of the toy. Discuss what else could be done with that money, such as buy seeds for a garden, which would in turn help reduce the grocery bill, if instead of using a credit card or a loan, the choice was simply to save up for the toy and pay cash for it.

By having these simple discussions and spending a little time together doing math, you can provide your child with a solid understanding of financial choices and what they really mean and really cost. Make it a habit to run the numbers together whenever a purchase is considered and you’ll help instill smart money habits that will last a lifetime.

Practical Application Experience

Providing the child with opportunities to gain practical application experience with the financial skills you are seeking to develop will nurture financial abilities and confidence. The family grocery shopping is an excellent teaching opportunity that can expand upon budgeting basics and develop such skills as comparison-shopping.

Work together on using the sales pages to help create a menu plan and a shopping list that makes the best use of the amount allotted in the budget for groceries. Calculate the true cost of convenience foods by comparing the cost of the ingredients to make things from scratch. Weigh such factors as whether generic brands are as good as name brand and what sorts of items may be worth paying more for and which are not. When in the store, demonstrate and then delegate responsibility for using unit prices to determine the best deals for the money.

The more guided practical financial experience a child gets, the less likely he is to make major, costly mistakes later on in life. Whenever possible, include children in the discussion of family purchases, and do the math together. Compare, example, the costs associated with buying a washer and drier -- such as the increase in the utility bill, as well as the actual cost of the machines -- and the costs associated with going to the Laundromat. Compare financial factors involved with the purchase of a new car with those of buying used. Place the children in charge of doing the research for a new family computer. These are valuable learning experiences.

We face challenging economic times and those that have the skill and discipline necessary to making smart personal finance decisions are going to have a significant advantage over those who do not. Use these simple techniques to help ensure that your child is among those able to enter adulthood with the skills they need to succeed financially.