Both my kids rode in the back of my Xterra since they were very young (one since being a newborn, the other about 1 1/2). They're riding in a child seat that's attached to another seat with cusioning. I can't see how that can be harmful. Plus they're high up, so a side impact has a lower chance of hurting them. Sometimes new parents worry too much. Just think of how kids survived ridding in horse and buggies, model-T's. etc. They're much more durable than you think. My youngest is a tank and I can't believe he survives just fine from all the spills, bruises, etc that he inflicts on himself by running every which way he can.
If you can't afford Bilsteins, try lowering the pressure in your tires until you can. 28 pounds or so.