Children inherit physical traits from their parents. But there’s something else they inherit that many parents don’t consider—their financial behaviors.

Most parents believe that kids should start learning how to manage money before they start kindergarten. But many admit they don’t know where to start or what to teach.

From the moment they’re born, kids learn how to live by observing their parents. You can start teaching your kids about money by simply explaining to them what you’re doing when you make day-to-day saving and spending decisions. And the stuff you don’t want them to pick up? Stop doing it. And even when you blow it, don’t stop. Let real life give you the opportunity to teach your children what to do under those circumstances, too.

Never spend it all. Show your children how to save money. Tell them what a retirement account is and how interest works to make money grow. Most importantly, teach them that they’ll never be broke if they always save for the future.

Delay gratification. Look for opportunities to explain the principle of delayed gratification. Patience builds character. It’s better to save now and pay later. Teach kids the difference between needs and wants. Children need to understand how making financial sacrifices today can improve their financial situations in the future. It’s good for children to yearn. Having all they want whenever they want it does not prepare them to thrive in the real world.

Spending choices. Kids assume that if you have enough money you can have everything you want. And if you have everything you want then you are happy. Hmmm ... wonder where they got that?

Never tell your kids, “We can’t afford it.” Think about it. That tells the kids the only reason you can’t buy this or that is because we are poor and pathetic. If we had more money then we would be happy because we could buy whatever we want. Instead, tell your kids, “We don’t choose to spend our money that way.” Much better because you’ve established the principle that life is about choices. And making the right choices builds character. Now the subject isn’t about money, but rather about values.

Compare prices. The grocery store is a great place to show the kids how you compare unit prices—the price per ounce for example. Show them that just because something is on sale doesn’t mean it’s the best value. Comparing prices is like getting a second opinion so you can make the best decision.

How banks work. Kids think ATM machines are magic, so this is a lesson you need to address soon. They see you stick a plastic card in the slot and out pops money. Better still, you get to keep the magic plastic. The underlying truth in all of banking is that you have to deposit more than you withdraw; you can only take out what you’ve put in.

Kids also think that as long as there are checks in the checkbook, there’s money in the bank. You too, huh? 

Teach the kids how a checking account works. Let them catch you in the act of paying bills, recording the checks you write and reconciling the monthly statement. Show the kids something really cool at Mvelopes (www.debtproofliving.mvelopes.com). This is an online budgeting system that turns your checking account into a visual playground where you divvy up your money into tiny envelopes. It’s fun and will visualize for the kids (for you, too) what it means to “pre-spend” your income.

Debit and credit cards. Your kids are growing up in a plastic world. It’s important that they understand as soon as possible what that means. First it’s easy to spend up a mountain of debt or blow through the contents of a bank account with just a little piece of plastic. But more importantly there’s a big world of consumer credit pulling on them to use plastic to live beyond their means.

Even if you’ve made mistakes in this area of consumer credit, you can make that a learning experience for your kids. You don’t need to reveal all of the details, but an occasional financial faux pas can provide a great opportunity to humanize money management. Kids benefit from seeing how problems are solved, too.

Talking frequently to your kids will give you the opportunity to communicate about life’s many lessons.

Teaching your kids about money will be eye-opening and fulfilling for them.

For you, too.

"Debt-Proof Living" was founded in 1992 by Mary Hunt. What began as a newsletter to encourage and empower people to break free from the bondage of consumer debt has grown into a huge community of ordinary people who have achieved remarkable success in their quest to effectively manage their money and stay out of debt. Today, "Debt-Proof Living" is read by close to 100,000 cheapskates.    Click here to subscribe.