Tax season is upon us, and as we prepare to pay our annual homage to Uncle Sam, it’s also an opportune time to consider teaching youngsters some lessons about taxes. Imparting some basic principles of taxes and personal finance not only helps prepare kids for a more prosperous adulthood, it also helps convey a sense of shared responsibility for the essential public goods that their taxes will someday support. Here’s a guide to a few age-appropriate lessons you should teach your kids about taxes.
Elementary school kids. Kids ages 5 and older are usually ready to begin learning about taxes. Break down concepts into the simplest terms and offer real-world examples. Consider the following simple lessons well within the grasp of your school-aged child:
[See: Answers to 7 Burning Tax Questions.]
What are taxes? Next time you take your child shopping — say, to the grocery store — try buying an item that costs a flat dollar amount. By buying an item that costs exactly $1 (or $2, $5 or $20, for that matter), you can easily illustrate the principle of taxation. Even though your product is labeled as costing a certain amount, the total at the register is usually several cents higher. That difference between the labeled price and the actual price you pay is thanks to taxes. When checking out at the register, show your child that the actual price is greater than the labeled amount. You can mention that this extra money you pay on top of the labeled price goes to the government. Once your child is aware that many items are taxed, he or she may want to understand why, which leads to the next basic lesson.
Why do we pay taxes? School-aged kids regularly interact with essential infrastructure paid by taxes. Point out parks, playgrounds, post offices, roads, bridges, hospitals, schools and other common government-financed services or goods they regularly see or engage with. Mention that when they get older, their taxes will help to pay for many of the places and services they use. There’s no need to get overly technical or political — just help kids understand, in simple terms, where the money goes.
[See: Dear Younger Me: 12 Financial Truths We Wish We Knew Earlier.]
Junior high. By middle school, kids have a more sophisticated understanding of money and society and are ready for deeper lessons about taxation. Some lessons worth sharing at this age include:
What are some different types of taxes? Kids should be familiar with sales taxes by now, but other types of taxes, such as income taxes, Social Security, property taxes and so forth, may not be as well understood. Consider providing a basic overview of each. For example, you can prepare kids for the realities of earning a paycheck by showing them yours. Highlight what you pay toward Social Security, Medicare, federal, state and local taxes, explaining the purpose of each.
Why is my paycheck smaller than I expected? Going over your pay stub is also a useful way to teach kids about how taxes impact their final take-home pay. Demonstrate that they’ll take home substantially less than their top-line pay rate, and help kids understand that responsible budgeting accounts for an after-tax paycheck that’s smaller than they may have expected.
High school and beyond. High schoolers may already be paying some taxes regularly — either through taxed income on part-time jobs or consumption taxes on purchases. Now is the time to prepare young people for the challenges paid by filing annual income taxes and generally dealing with a more complex tax situation in adulthood.
[See: How to Talk to Millennials About Money.]
How do I prepare to file my taxes? Youngsters should understand that filing taxes is an annual responsibility — even if they don’t think they’ve earned enough to warrant filing. Once your child has their first job, help them plan for filing taxes by keeping them organized and encouraging them to store W-2 forms, receipts and any other documents necessary for filing. In so doing, you can also help high school students budget for any upcoming tax bills and avoid procrastinating on their taxes.
Why do I have to pay so much in taxes, anyway? Does your teen wonder why taxes are so darned high? Then it’s time to encourage them to learn about the government’s role in the creation of taxes — and what they can do about it. Remind teens that Congress must pass bills in order to increase or lower taxes, and that even local taxes must be approved by municipal governments. That’s why it’s important for them to become informed and involved citizens, taking an interest in election issues and voting once they turn 18. And helping teens understand the importance of taxes for financing many essential services can aid them in making principled decisions as an adult.
While taxes may seem a bit daunting, even for many adults, it’s a topic that’s best understood early in life, when we’re able to develop healthy financial habits. Helping kids understand the essentials of taxes today can help ensure a brighter financial future tomorrow.
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6 Lessons to Teach Your Kids About Taxes originally appeared on usnews.com
