Children understand basic financial concepts by age 3 and many money habits are sealed by age 7, reports the Public Broadcasting Service Opens in new window. Teaching your kids about personal finance now can put them on the path to financial success.
One aspect of personal finance that's likely to impact children the soonest is taxes. That's because everyone, regardless of age, must file an annual tax return if they earn above a certain amount. For 2018, that amount was $12,000 for earned income and $1,050 for unearned income. Opens in new window
So, how to teach kids about taxes? Here's how to introduce taxes in a way that will make sense to them and engage them.
Start at home
Because parents are in the best position to frame money lessons to be relevant to their children, teaching them about personal finance and taxes should start at home. "Most kids know nothing about income taxes except that we pay them and they go to the government," says Seth O'Bryan, who teaches a high school math course that includes personal finance at The Harley School in Rochester, New York.
Kids should understand what taxes are and why they're important. Explain how taxes are a portion of earned money that's set aside to pay for community services and help society function. Talking about how taxes help fund police departments, maintain public roads, develop infrastructure and fund health care will help bring the concept to life.
Cover the basics
Although adults often avoid discussing, or even thinking about, taxes, that's not the case with youth. "Kids are very interested in learning," O'Bryan says. "Teaching them about tax brackets and how different incomes pay different effective tax rates is engaging, real-life, and students pay attention."
Teaching young children about tax basics can be as easy as discussing the different types of taxes as you go to pay them, such as property and income taxes. You can inform them about other taxes, too, such as capital gains and sales tax. In his class, O'Bryan's students discuss everything from tax credits and deductions to the impact that current events and tax cuts have on themselves and others.