Summer Fun!! Four steps to teach your kids about taxing. Not relaxing.
The title of this article may sound like a bit of a buzz-kill. While every other business in the country pushes "Summertime Savings" and other marketing ploys to keep you spending, spending, spending until Christmas season, we'd like to offer something practical that may actually help your kids learn financial responsibility and knowledge. It's not exactly a box of sparklers, but you get the idea.
Our tax system is complicated. It is difficult for most adults to understand. Now try explaining to your kids what a tax is, how to budget for it, or how to submit all the right paperwork to get a refund or pay in. Do you feel a headache coming on?
Bill Murray, legendary actor and comedian, said; "The best way to teach your kids about taxes is by taking 30% of their ice-cream." Start there and then follow these four steps.
The first thing you should do is discuss with your child what exactly taxes are and what they are used for. In general the younger they are, the simpler you should keep the details.
Thus, with a child below high school, the conversation could be as simple as taxes are what you pay into the government to help pay for services for the entire country, state or town.
The older they become, the more you can add in examples of what the money may go for such as roads, schools, and the military. You can also introduce other types of taxes such as sales tax and property tax.
PRACTICE PAYING TAXES
The next step would be to start introducing them to the concept by taking taxes out of their allowances.
It is a great way to have them understand that when they hit the "real world" that they will not get the full amount of their salary or hourly wage. Instead, a percentage will go to the government.
You get to play the role of government here, so you should set out specifically what that money will go for, so they understand the role of taxes. You could use things like paying utilities, toilet paper purchases or car maintenance. The goal is to pick something that costs money and is used for the good of everyone in the house.
BUDGET AROUND TAXES
The older your child becomes you will want to have them learn how to budget with taxes in mind. If your child has a job, they can begin to learn how to budget and have this be an expense that they plan for.
If they don't have a job, but you are practicing with their allowance like we discussed above, then you can also begin to have them build it into a budget, but try and keep it simple with just one line item.
The younger your child is, the harder this one becomes to manage, without them becoming confused in the process. So try to save it this step for the kids that are sixth grade and higher.
HOW TO FILE TAXES
Finally, once your children do get a job, if they make enough and have taxes taken out, they will want to file a tax return.
It is the point where you get to explain the process of getting your W2, filing the right paperwork and submitting it to the government. You can use this time to review how taxes are actually calculated and get into more of the details such as deductions.
It is where it can get confusing, so try and ease into what you are teaching. Maybe you add a few more concepts each year, or once they fill out their first return, you can then review more once a quarter to keep it fresh in their mind.
By helping your child understand taxes (and finances in general) early on, they won't get the surprise of their life when they open up their first paycheck. Financial responsibility doesn't come with seasons. Don't let our consumer-addicted society fool you into thinking you deserve a break from it. The IRS and debt collectors thrive in the warmer months too. Our suggestion is to teach your kids how to swim, how to earn, how to budget, and how to eat an orange push-up before they melt... in that order.