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How to Teach Kids About Taxes

Mar 11, 2020 3 min read Marcia Layton Turner

Key Takeaways

  • Talking to kids about taxes and personal finance sets them up for financial success.
  • Teach kids basic tax concepts such as credits and deductions.
  • Apply tax concepts to real life using money they earn through a job or an allowance.

 

 

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.

 

Make it real

Since children often learn best by doing, many parents find it useful to apply the concept of taxes to their kids' everyday lives.

Consider paying your child a regular salary for completing household tasks, then having them pay a percentage back to contribute to household expenses such as electricity, heat, internet and TV. By relating the American tax system to their allowance, kids can better understand the concept of paying into a system that supports the common good.

As they get older and earn their own money, introduce the concept of keeping track of earnings and expenses. When they receive their first paycheck, take the time to go over it and explain how much of their check is being withheld and for what purpose, as well as how certain deductions will change as they make more money. You can also familiarize them with tax paperwork and explain how, depending on their total earnings for the year, the IRS will return a portion of their withheld money in the form of a tax refund.

By teaching your kids about taxes while they're young, you'll provide them with a solid understanding of why taxes are necessary and the confidence to tackle them when they have to file their own.

 

What you can do next

Talk to your kids about personal finances and taxes and teach them tax concepts using real-life scenarios.

 

Footnotes

Marcia Layton Turner writes regularly about personal finance and business. Her work has appeared in magazines and websites that include Businessweek, Entrepreneur, CNN Money, US News & World Report, and Forbes, where she is a contributor.

 

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