Open and positive communication is the key to beginning the transition to a frugal family lifestyle. Kids should even be told of events that affect the budget, like the loss of a job or a sickness in the family.
One of the most taxing challenges parents face is how to respond when their children ask for things that don't fit into the budget. First, you shouldn't feel guilty for refusing to buy an unnecessary indulgence. All parents want to make their children happy, but you must keep in mind that the budget comes first and that it's better for them to learn the long-term lessons about financial discipline and delayed gratification.
On the other hand, constantly responding with a flat-out "no" gets old quickly for parent and child alike, and at the same time it promotes a negative environment. Instead, when a child asks for something, tell them to start a list of all the things they want and that you'll discuss it with them. Then, ask him or her to prioritize the list and discuss prices. Find something that fits within the budget, and make it a goal for the child to reach as a reward for chores and good behavior.
The earlier you start instilling financial discipline, the better. Still, it's never too late to start. Teens will appreciate the openness and honesty if you talk about your own struggles to stay within the budget. They should understand that this isn't a restriction placed only on them, but on the whole family. They'll also benefit from hearing about the techniques and tricks you use for staying within budget. Encourage them to contribute ideas and promote a team atmosphere for them to feel part of the communal efforts.
Although verbal communication is extremely important, setting a good example is arguably just as essential. The old adage that "actions speak louder than words" is very true when it comes to parenting. Children pick up a lot more than you think from what they see you doing. You could begin the budgeting process by talking to them about the importance of being frugal. But in the end, if the kids see you breaking your own rules, they'll learn that they can, too, and they'll promptly disregard everything you say. So, without speaking a word, displaying good financial habits is arguably the strongest communication method at your disposal.