My 3-year-old always asks to buy stuff when we go into a store. To anyone who has kids, this certainly isn't a shocker. So how do we deal with it? In her book, Money Still Doesn't Grow on Trees, Neale S. Godfrey says that if you should remember only one piece of information from her book, it's the phrase, "This doesn't fit into our budget." My wife and I use this line all the time. Our daughter is three so she keeps pushing, but I think she's starting to get the point. Why this line? Neale looks at the primary alternative line, "We can't afford it," and says "...that it doesn't mean anything. In fact, you probably can afford it." Saying that something doesn't fit into a budget will also help us segueway into a larger discussion about budgets when the time comes (of course, we think three is a little young). I have a friend who is also a financial representative and I was impressed by his dogged use of the "budget" line with his 4-year-old the last time we were out. It worked to quash the requests pretty effectively. I was also secretly giddy that his kid suffered from the same consumption issues as our daughter. Let me know what's working for you.
Neale's book is available at most major booksellers.