Teach your kids to spend wisely

By Sharon Epperson

Financial education among our young people is critical, but severely lacking. In fact, only seven states require high school students to take a personal finance course to graduate, according to the Council for Economic Education. This means many students will enter college or start their adult lives without a clue about how to balance a budget, manage credit or distinguish a "need" from a "want."

So, moms and dads, it's time to step up. Here are basic things that parents can -- and should -- do to encourage money smarts in their kids, no matter what their age:

Pay with cash. Parents often are reaching for a credit card instead of fishing for dollars. Take your younger child along when buying a snack or toy, give him a dollar bill and let him pick the item. "He'll learn that there are some things he can afford and some he can't," says Laura Levine, executive director of the JumpStart Coalition for Personal Financial Literacy, a Washington, D.C.-based non-profit that works with students.

Give an allowance. Make kids earn it. Create an allowance system that resembles the way companies compensate employees. Be consistent with what is required to receive the money (e.g., the household jobs) and the day that they'll be paid. Encourage your children to save their allowance -- and teach them the value of investing -- via a savings account you open together. Have them spend their own money on two or three necessities, like school lunches or clothing, so they can begin to distinguish between needs and wants.

Be honest about your own money situation. "Don't say that things are OK when they're not," says Susan Beacham, founder and CEO of Money Savvy Generation, which creates products to encourage saving. "If you have lost a job, let them know what it means in concrete terms." And if you made a financial mistake, consider it an opportunity to talk to your kids about money.

Contributing Editor Sharon Epperson, author of "The Big Payoff," is a CNBC personal finance correspondent and on the board of directors of the Council for Economic Education.