A Suze Orman exclusive

4. Gifts Are Not a Given
I don’t care how wealthy you may be, or how much joy you get showering your kids with toys and gifts. You have got to show some restraint. It’s good for them, and for you too.

Gifts should be for an occasion. A birthday. A holiday. An important milestone. If you simply buy everything your children wants, you are not only taking away the “specialness” of gifts, you are setting up your kid to be a financial wreck. The children who get everything they want at 12 become the 22-year-olds with huge credit card balances they can’t pay—simply because they grew up not understanding moderation and living within one’s means.

Don’t feel guilty about scaling back the spending. It’s not about saying, “No, you can’t have that pair of jeans.” It’s all about saying, “Why don’t you put them on your list for Christmas, or for your birthday?” And hey, if they absolutely must have something N-O-W, please let them “earn” it with a job or project around the house.

5. Give’em Credit
You must educate your kids about how credit cards work before they go to college. That way they won’t fall prey to all the credit card offers they will be assaulted with during freshman orientation. I can’t tell you how many thousands of young adults tell me their money problems began in school: they fell for the card offers and started charging away without understanding the ramifications of what they were doing.

That’s where you come in. Make them card savvy when they are young and you will literally save them thousands of dollars in interest payments that they’ll know how to avoid.

You have a few options in how to give your kid credit. If you have a good FICO score of at least 720, I recommend that while you child is young you simply add their name to all of your credit cards as an authorized user. Obviously you are not to give them your credit cards, or in most cases even let them know you have done this. But by doing so, your good FICO score will become theirs as well. Then when your child hits 13 or so, I think it is time to give them a debit card tied to an account you set up for them. Each month you deposit a set sum in the account and discuss with your child what expenses are to be covered under it. And because they can only charge up to the amount in the account, they are going to learn a lot about money management the first time they try to use the card at the mall and it is turned down. (A crucial tip, though: make sure the account at the bank is set up so they will not be covered by a bank overdraft policy; you want them to simply be turned down if they try to charge beyond their balance.)

I would also encourage you to encourage them to stick with a debit card while in college. Yes, I know this doesn’t help them build a FICO score, but if they are on your cards as an authorized user, they’re already doing that. And for heaven’s sake please do everything you can to steer your kid away from jumping at the credit card offers they will be enticed with during college. As I said, thousands of young adults have told me this was how their financial life took a really bad turn right out of the gate. They just charged away in school, and then when they hit the real world they had a ton of debt and a lousy FICO score. It’s better if they wait until they are out of school to get their own card. With an income and the solid FICO score they’ve accrued from your credit cards, they should be able to get a good deal then—and be mature enough to use it wisely.

Once again though, remember that your child’s financial future largely depends on your financial reality today. You can’t teach them what they need to know if you yourself are financially irresponsible. I know you may be 20 or 30 or 40 years older than your children, but that doesn’t mean you are any more mature than they are if you have no respect for money. If that’s the case, you need to grow up fast before you ruin your chances of raising a financially secure child.