Teaching Kids Fiscal Responsibility

Eleven-year-old Isabel Bilyk, her sister Natalie, 8, and their little brother Sammy, 5, are just like many kids their age; they want things that come with a price tag. Sammy's bedroom is a showcase of stuffed animals, Legos and cars. His latest fantasy? To be a ninja. But that requires equipment.

"Can I have a sword?" Sammy asks his mother Nancy Bilyk. "Can you have a sword?" she replies, bemused.

Bilyk says it's so tough to say no to her three children. "Oh it's brutal! Just the look on their face just gets ya!" she says. But their wish list seems endless. Every day they ask for something different, from iPod speakers to a new cell phone and new clothes.

VIDEO: Kids and the RecessionPlay

Just Say No Is Not Enough

However, in these tough economic times, Nancy has been having to say no a lot more. The children have been keeping score of how often their parents say no these days.

"Fifty!" Sammy exclaims. "No, 15 percent!" Isabel jumped in. "Fifteen percent, 15 percent," all three kids finally agree. But what they don't understand is why their parents are cutting back so much.

The Bilyks used to eat out often, but now they rarely do. Instead of ordering in, they make pizzas with wheat tortillas. Like so many families across the country, Nancy and her husband, Tom, have suffered deep losses in their 401(k)s, and their house has lost value, while their pay stagnates.

"We personally have not told them anything about our personal situation," Nancy Bilyk says. Tom says the situation is tricky to explain to the kids: "We talk about how we can't do camp, or you know we can't fly for this vacation, we can't do certain things."

But when kids hear only what they can't do without understanding why, they fear the worst.

"I feel like we're really going down. I'm getting kind of scared because I think we might lose our house," worries Natalie.

"Children have strong reactions, they see things in black and white," says Eileen Gallo, financial psychologist and co-author of "The Financially Intelligent Parent." She explained that children can be more anxious if you leave them in the dark. So she advises parents to have an honest dialogue with their children on money matters.

Honest Dialogue on Money Matters

"Parents do have to talk to the kids. They need to explain about the economy, that we are going through a hard time, we have less money to spend and we need to be careful how we spend our money," Gallo says. Children learn the value of money by parents' words and example, how to spend money and why.

"There are a lot of things that we have that are a lot more expensive than the things we ask for, so I'm thinking, well if they can get that, why can't they get this? I'm confused now!" Isabel Bilyk says.

Be Consistent With Spending Choices and Values

"Parents should be modeling value in how they spend their money; kids need consistency, they need a structure," Gallo says. She urges parents to be consistent in their spending choices that are tied to their values: "They need to say to kids, 'We choose to spend on this because' or 'We choose to not spend on this because' and repeat often these phrases every time they have to make a decision about how they need to spend their money."

Kisha Green is a 35-year-old single mother who has been teaching her son Isaiah, 5, lessons about the difference between a want and a need. "Give me five bucks!" little Isaiah shouts as they shop at a supermarket. "Five bucks, I can spend on Pokemon cards!"

"No, you can spend your five bucks on the snacks for the weekend, remember we talked about that? Not the playing cards, but food," Green says. She always reminds Isaiah what his spending allowance is before shopping, and then holds him responsible for choosing wisely.

"The five-dollar allowance may seem like a slightly larger amount," for the week, Green says, but her son's also understanding a cutoff. "I'm trying to teach him the principle of budgeting your money." Allowance Fosters Budgeting Skills

Financial experts agree that an allowance is an important discipline for a child. Kids learn budgeting skills, to delay gratification and to think reflectively.

Isabel, Natalie and Sammy Bilyk are no strangers to allowance. The Bilyks tie it to their weekly chores such as laundry, dishes and walking the dog. Each child gets a dollar amount which equals their age. They are taught to spend some, save some and give some to charity.

"Our mom makes a charity envelope. We put a portion of our allowance money in that envelope and donate it to the charity that we pick," explains Isabel.

As for little Sammy, he continues to bug his mom about his latest obsession, a sword, because he wants to be a ninja. Nancy finally tells her little boy, "Well, you can put that on your list!"