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Walking ATM? Spot the cash, spoil the child

TODAY Financial editor Jean Chatzky shares 5 smart tips on teaching kids the value of money.
/ Source: TODAY contributor

Are we raising a generation of spoiled children? As a mother, it's a question I ask often and a topic I've debated more than a few times with friends. I've seen teenagers with cell phones so high-tech I can't begin to understand them and cars twice as nice as mine. The new iPhone has become the ultimate status symbol not for just the 20-something crowd but for tweens and teenagers as well. "Parenting has become a competitive sport. Parents are traveling over each other in an attempt to do what they think is better parenting, but in some instances, it's actually backfiring," says Dr. Gail Saltz, a Manhattan psychiatrist, best-selling author, TODAY Show expert and (full-disclosure) one of the friends with whom I've had those aforementioned debates. If your children have everything handed to them from an early age, not only will they struggle to care for themselves one day, but you'll also rob them of the satisfaction that comes from, say, finally getting that brand-new car you worked hard for. We don't set out to spoil our children. Many of us simply want to give them the things we didn't have growing up, and that's understandable. I'm all for kids' having cell phones in case of an emergency. I'm against an automatic upgrade every time a new model hits the shelves. Children need to know that their belongings are valuable, not disposable. But how do you teach them this and other important lessons about money? Walk the walk
If you don't have control of your own money, you're well on your way to raising a child who behaves exactly the same way. And why shouldn't he? Children are innately observant and easily pick up our bad habits, whether that means one too many shopping sprees or a bounced check here and there.

"At the end of the day, children look to you because you're their model, and they'll emulate you, whether that's good or bad. If you're always struggling for the next big thing and living outside your means, they're not going to buy it when you try to teach them to do otherwise," Saltz explains. The best example you can possibly set is one of confidence, in both your finances and your lifestyle. No child needs to watch you max out a credit card in an effort to keep up with the Joneses. Teach them to make choices
One of the most important lessons when it comes to managing your money is that you can't have everything you want. It sounds pretty simple, but for many people, it's not — as evidenced by the soaring debt in this country. It's an even harder concept for your children to understand, but the easiest way to drive home the point is to stop bailing them out. Give them a set allowance (to hammer out an amount, get an idea of what the neighborhood parents are giving, then raise it a bit each year), and then show them how to budget so the money stretches at over an entire week. If they screw up one week and blow all the cash on Monday, keep your wallet closed so they learn not to do it again. If you hand over more money, the only thing you'll teach them is to turn to you every time they're short on cash. And with 65 percent of kids ending up back home after college, that's not a lesson you want to impart.Disappoint them
Sounds harsh, I know. But no matter how hard you work to shelter your kids, eventually, they're going to come across a bump or two. Teach them at an early age how to cope with a small disappointment here and there, and they'll have an easier time when the bumps turn into hills and mountains later in life. Believe it or not, denying a couple of requests for a candy bar over the years really might help your child when a job interview doesn't go well, or he doesn't get accepted to that Ivy League school. "You really can impact your kid's ability to cope later on in life, take trauma and bounce back. If you never test that, and life is just on a big puffy cloud, they'll never build that skill and will really struggle as adults," Saltz says. So rest assured that it's OK to say no once in a while, if only because you said so.Communicate
As far as conversation topics go, money is right up there with sex. It's taboo, and a lot of families just don't talk about it. But if your children are asking for something that you just aren't ready to lay out the cash for, it's perfectly fine to say that. Then express your reasons — it's not in the budget right now, or spending the money on something else will bring more value to the family — without piling on too much information. This is where it tends to get tricky because it's important to strike a balance between explaining that the purchase isn't in the budget and needlessly burdening them with your financial problems.

In general, children will let you know what they're ready to hear about simply by asking, so if you stick to answering their direct questions, you'll usually come out fine. Emphasize the family's valuesIt happens all the time: You tell your daughter she can't have the new dress she wants, but you're happy to write out a check in the same amount for piano lessons each month. Understandably, this can seem a bit contradictory to a kid, so use it as a lesson in what's important in your house. Sit down and explain why you spend money on some things, and not on others. Whether your focus is music, education or sports, explaining your family's individual values will help children understand your spending habits.

It can also help bail you out when the next-door neighbor gets the newest video game, and your son doesn't.

With reporting by Arielle McGowen.

Jean Chatzky is an editor-at-large at “Money” magazine and serves as AOL's official Money Coach. She is the personal finance editor for NBC's “Today Show” and is also a columnist for “Life” magazine. She is the author of four books, including “Pay It Down! From Debt to Wealth on $10 a Day”(Portfolio, 2004). To find out more, visit her Web site, .