As a teacher of economics for middle school students, I always love when parents ask this question. The philosophy of parents is different, so there is a multitude of ways a parent can approach this topic. I loved the resources that dgraab provided in an earlier answer; those articles are packed with a wealth of ideas. These arm parents with knowledge, so they can make intelligent choices for their family.
When teaching economics, I always bring up the importance of saving for both short-term and long-term goals. Also, I also help students learn about "opportunity cost;" once a choice is made and the money is spent, there isn't anything to do but to start saving once again. Students easily understand that if they only have a dollar and they use it to buy a soda, there's no money left to buy a candy bar.
I love it when parents put money in their children's hands and then expect the child to make his or her own choices. It's a powerful tool when a child saves and saves to buy the toy of choice; the child feels so empowered. As students get into middle and high school, they are fully capable of paying for their "extras" at lunches, special activities, and clothing. It doesn't take long for a person to make better choices when he/she sees a "favorite" top fall apart after only a few washings.
I also love it when parents sit down with older youth and explain about their household budgets. Let students get involed. They may end up being the ones who clip coupons to help with the grocery bill, turn off the lights when they leave a room, or start wearing a sweater or slippers and dropping the thermostat. Most students today are "green" conscious, so take advantage of their knowledge.
Money is a great tool for teaching students. I'm delighted you asked this question!
You should really start from basics: explain what money, spending, earning and stuff like that means. It can be in a form of a game. The main idea is to show that in order to make money your child has to earn it. If your child is little, begin with simple things (like cleaning his/her room). Make it a fun event for your child. Another very important point is to teach your kid to save money. That being said: be a good example, but it does not mean that he/she has to know every single financial detail of your life.
I find it helpful to have pictures of things you spend the money on. I also withdrew a certain amount of money and placed an amount next to each picture. I separate the needs from the want and explain that the wants can only be bought if the needs are settled.
Children are very visual and practical learners so this strategy is a good one as they can see where the money is spent.
You could also divide the money into 3 ways - investment/save, charity and needs/wants. Give them a certain amount of pocket money - some of it is spent, some of it goes into the bank (open an account for them) and some is given to charity. They will learn quickly and love to see their money grow. It gives them a sense of responsibility to use their money correctly and giving to charity teaches them kindness.