Summer: Time For Teaching Your Kids About Money

For many children, summer holidays mean the chance to earn and spend summer cash. This article will look at how to get the most out of your child's summer cash by sneaking a few financial lessons into the spending spree.

The best way for your child to earn summer cash is to find a job working for someone other than you. In addition to requiring motivation and a sense of responsibility, an impartial employer is more likely to set clear expectations and provide the feedback that a child needs from a boss. If you have to play both the parent and the boss, the roles can get muddled. 

That said, the scope of jobs available to your child is limited by age. In the U.S., a child must be 14 or older to work non-agricultural jobs, excluding paper deliver and some other traditional childhood jobs as defined by the law. 

In reality, children under the age of 14 are often employed off the grid weeding gardens, watering lawns, and generally helping out in exchange for cash.

The allowance dilemma is the choice between giving your child money simply because you share DNA or tying payments to a task like doing chores. The option you choose depends on the message or behavior you're trying to reinforce. If you go with the payment for chores option, make a clear list of responsibilities and jobs. 

Responsibilities are things you expect done without payment, like cleaning up. Jobs are things you'll pay for as long as the responsibilities have been fulfilled first. Payments can be made after the completed job is inspected or at regular intervals like a salary.

Now that your child has money, he or she is probably more interested in spending it than earning more. You need to encourage him or her to see beyond impulse purchases like candy to a larger purchase that will involve regimented savings. This can be an item like a bicycle, a video game or a new pair of running shoes. 

You might also consider less conventional savings goals. You and your child can work together to save up for a family trip, concert tickets or tuition for a summer camp. Allow for some immediate gratification buys, or you might find yourself with an unmotivated employee, but make sure to sit down with your child and make a budget that breaks earnings into "spending now" and "saving for the big purchase" according to a percentage. (Help your child meet his or her savings goals by Opening Your Child's First Bank Account.)

No matter what your child decides on, treat the purchase like you would buying a vehicle. Take a day or several days to go around to stores or websites and compare the price of the item with your child. Collect sales flyers from the stores, talk to the salespeople about whether the price will go down in the future, and let your child conduct his or her own research as well. 

As soon as your child reaches the savings goal, set a date and make an event out of the purchase. It's hard to stick to a budget, so celebrate your child's achievement.

If, however, your child is having trouble overcoming impulse buys, don't give up. Offer to match his or her savings with the catch that the money will be withdrawn if your child's savings are spent on something else. This means he or she will effectively be earning (and saving) twice as much and be able to reach the spending goal twice as fast, an advantage that will not be lost on your child.

Once your child reaches his or her spending goal, it may occur to him or her that they can just keep on working to buy everything they want. Fortunately, the looming back-to-school date offers a good lesson: you can't always depend on money coming in. You have to save some for a dry spell. Spending all of the summer cash means no winter cash. 

But if your child learns it early, he or she will have fewer problems with personal finance in the future. (To set your child up for a lifetime of smart money management, read Teaching Your Child To Be Financially Savvy and Help Your Kids Understand Money.)

If the desire and understanding are there, you can work out a long-term savings plan. Assuming the work system you used during the summer functioned well; you might even consider continuing it in a limited version during the school year, adding homework to the responsibilities before you offer paying work.

Earning and spending summer cash creates a chance for your child to learn positive financial habits. Although the motivation needs to come from within your child, a little guidance and clear expectations will go a long way toward kindling the flame. 

More importantly, your child's attitude about personal finance probably takes cues from your own, so re-examine your own approach to money and summer spending if it seems like the lesson isn't getting through. To paraphrase Ralph Waldo Emerson, what you do may speak so loudly that it drowns out what you say.