It may seem strange to prepare young children for financial trouble when they haven’t even had the chance to succeed financially. Yet success is usually easier to deal with than failure. And some time in life, your children are almost certain to face some financial trouble. Let’s face it, these are rough times.

Our kids are seeing us “downsized,” “laid-off,” “cut-back” and they are not stupid. If they suddenly see mom or dad moping around the house during work hours, they may not buy into your retort, “Nothing is wrong, I just thought I’d take a little time off.”

They may leap to the conclusion that you are sick, really sick, and that is worse.

Share, Don't Scare

Come clean with your kids, but don’t scare them. Explain some of the real things that are happening, for instance, that lots of banks made lots of loans for houses to people who now can’t pay those loans back.

Also, gasoline has doubled in price. Not only does that mean, for instance, if you paid $2,500 a year for gasoline, you are now paying around $5,000 a year for the same gas.

Use real numbers. Ask kids to think about how that gas increase “ripples” through the economy to cause other things to increase in price.

Use cereal as an example. Farmers grow grain and harvest with machines that use gas. They process with machines that may use natural gas. They package the cereal in boxes that are made from trees that need to be cut down and processed and made into boxes to be trucked or shipped to the cereal company. Then the packaged cereal boxes are again trucked to your supermarket.

Your kids will be able to come up with their own examples of how the gas price increase may cause an increase in the cost of another item. (Ask them why sneaker prices or the price of popcorn may go up.)

Getting back to cereal, once kids figure out that it costs lots more to make that cereal, and the cereal manufacturer will not want to make cereal to “lose” money -- what do they do?

Yup -- increase the price of cereal and try to cut expenses by using fewer workers, and cut down on advertising, which means that the advertising companies will also lay off people – etc., etc.

These are the big issues, but most of life deals with small issues. Sometimes we can’t control the big issue of price increases or losing a job. All we can control is what we spend. Overspending can cause lots of angst. (See Raise Wise Spenders.)

Preparing For Pressures

Your children also need to be prepared to handle financial pressure. Bring it down to their level. How would your children handle these situations?

• Your daughter is paying for a CD at her favorite music store when the salesperson announces in a loud voice that her card has been rejected and is being kept by the store.

• Your son spends six month’s allowance on a Wii Nintendo ™ system that he bought from eBay, which turns out to be a cheap copy, and the dealer is nowhere to be found.

Situations like these can and probably will be a source of embarrassment for your children. Most of us have paid too much for something, paid a bill late or even bounced a check. Every year, a few people also are audited by the Internal Revenue Service, fall victim to a financial scam or even file for bankruptcy.

Although you’ll want to be there for your children when they’re grown up, you’ll want them to know how to handle themselves financially when trouble arises.

You’ll want your children to know that if their card is taken by a store, they should keep calm and find out exactly what the problem is. They should talk to the card issuer right then and there, or call later if necessary.

Or you will want your children to know that if they paid too much for the Wii system, they’re not the first or only person to make such a mistake. But, they’ll have to learn to keep their eyes and ears open for scams, and learn to spend within their budget.

Equipped with financial and spending know-how, your children should eventually be able to handle sticky situations and make the smart decisions needed to navigate the adult financial world.

Neale Godfrey’s Checklist for Raising Wise Spenders

Meet Neale Godfrey

Get your kids started on the road to financial literacy at Minyanland.com