Are Your Children Money-Smart?

En español  |  If you knew then what you know now about money, would you have invested differently? Saved more? Budgeted better? Worried less about all of the above?

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We can't change the financial past, but we can use its lessons to help save our kids and grandkids from mistakes we've made. Admittedly, many younger people won't be happy to sit and listen to a lecture on prudent money management. But with the right presentation and creativity, full of lively examples from your own particular journey, you can capture their attention.

"The younger you start teaching them, the more it becomes muscle memory by the time they get older," says Lule Demmissie, managing director of investment product and retirement at TD Ameritrade. "We can play a much more vital role in educating our children about money."

So what lessons should you be passing on? Below are six that financial gurus agree should be taught sooner than later:

Money Lesson No. 1: Budgeting is hard, but find a way to make it work for you.

How many budgets have you created and ignored over the years? More than you count, probably. "Budgeting is unrealistic. We have to get real and practical," says Robert Pagliarini, president of Pacifica Wealth Advisors. To that end, he offers the P.E.R.K. strategy: Grab a pencil and paper and list out expenses to weed out excess spending.

Put a "P" next to items you can postpone (buying a car, going on vacation, for intance), an "E" next to things you can eliminate (magazine subscriptions), an "R" by expenses you can reduce (eating out) and a "K" next to must-pay expenses (health insurance).

"It works because you become conscious about where your money is going," he says. "If all we did is simply write out what we bought, we would save more."

Money Lesson No. 2: The stock market is unpredictable, but you're in it for the long-term.

Although recent stock losses are a tough pill to swallow, use this time as a teachable moment for tomorrow's investors. "There is so much emotion in the market," says Chris McLean, principal and client strategist at Signature, a wealth management company in Charlottesville, Va. "But you've got to have discipline when you're invested. The market always bounces back."

His tip? Allocate a portion of your portfolio to a cash cushion so that when dips in the stock market happen, you won't feel wiped out. But don't put all your eggs in one basket. "Don't chase the screaming sector." Be wary of jumping on the next hot stock. Think of how people who went for Facebook now feel, as the stock remains well below its opening-day price.

Money Lesson No. 3: Save strategically, with a plan.

Here's a good method from Pagliarini. Save half of your age. Take your age, divide it by two, and that's the percentage of your income that you should be saving. For example, if you're 20 years old and just starting your first job, you should save 10 percent of your salary. If you're 44 years old, you should save 22 percent.

Benefits? "When you're younger and aren't making much, reaching the target savings rate is easier," he says. "When you're older, you're not only saving a greater percentage, but you are presumably making more money and are saving a greater dollar amount."

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