Did you know that butterflies have delicate wings that are covered with supertiny, fish-flake like scales? These tiny scales can be easily injured. When a butterfly injures her wings, it's more difficult to fly from flower to flower for yummy nectar. This is why I recommend a "Use your eyes, not your fingers" approach to fluttery friend interaction.
At some point you may come across a dead butterfly (she will likely be found on her side, on the ground, very stiff and dry.) Dead butterflies are ideal for close-up investigating. But even if all the butterflies you encounter are still alive, you can always collect memories, by using a camera, or by drawing the butterflies you see together.
I was HORRIFIED last week when I stumbled across a newish kids-and-nature-themed typepad blog. It had a really disturbing butterfly stretching board post. They recommended an especially scary parent/child project: KILL JARS. I'm not kidding. There was even a handy kill jar tutorial link, with cheerful little tips about how to effectively kill various other insect species, too (the pros and cons of drowning, etc.) Maybe I'm just a total wimp-naturalist, but I have a problem with encouraging children to kill things ...("hey kiddo, grab your sweater and handy KILL JAR... let's go outside and find things to kill!"...)
Some very young children do initially want to squish bugs (this can be part of a normal developmental stage: they're practicing motor skills, learning cause and effect, realizing that they can make things happen...)
As nature-loving grownups we can:
1) Set clear rules ("In our family/class, we don't squish bugs.")
2) Discuss why you don't squish bugs (a great book is Hey Little Ant.) In your family/class, if you do squish some bugs, but not others, discuss your reasons behind that, too.
3) Redirect the behavior towards something else ("Let's look for yellow flowers.")
4) Give squish-sensory-inclined little kids opportunities for more appropriate squishy activities (like play dough, flubber, finger painting, helping break down recyclables for the recycle bin, etc.)