Financial Tip Friday – How to Teach Your Kids About Taxes

Kids and taxes do mix. If you’re wondering when the perfect time to talk to your child about taxes, use these tips to start the conversation.

Financial Tip Friday is brought to you in partnership with the 1st National Bank of Dennison.  

Taxes can be confusing for adults. That’s why teaching your child about taxes is important to do early on.

At different stages in a kid’s life, they can understand the concept of taxes more.

Toddler and Elementary Schoolers

Did you know by the time a person is 3, they have an understanding of money? Then, around 5, they are ready to start learning about taxes.

It’s never too early to help your child become financially literate.

Young children at this age notice everything. While grocery shopping, let your children know the listed price of items. After you check out, show them how taxes impact the total cost. They’ll instantly be able to see the difference.

If and when they ask where that money goes, let them know it goes to the government. Relate it back to something they can understand at their particular level. You can mention how taxes help maintain playgrounds, schools, and roads. This will help them understand where the money is going and how these places work.

Middle Schoolers 

After they get the hang of sales taxes, introduce your school-aged children to other types of taxation.

The best way to do this is to break down your paycheck with your child. Here, they will see how income taxes, property taxes, and Social Security are taken out. This helps them see the impact taxes have on take-home pay.

Then, use this time to talk about how the government uses these taxes and how it helps them and our system. Kids and taxes seem impossible to mix, but the earlier kids are introduced to why people are taxed will help them be financially stable in the future.

High Schoolers

At this age, high school-aged kids are starting their first jobs and planning for their futures. They must understand how to file taxes, the government’s role in taxes, and how they can become informed financially.

Kids at this age will start putting theory to practice. They’ll fill out their first W2s and file taxes at the end of the year.

If your child will probably need help with doing this the first few times. Again, have an open conversation with them and you’ll be able to assist them along the way. With your guidance, your teen will be confident the next time they tackle filing their taxes.

Activity for All Ages

If you’re able to pay your child for age-appropriate chores, this activity will help teach them how taxes work. No matter if it’s a dollar a chore or whatever price you agree on, the premise is the same. The main thing is to have them work for what they’re earning like they would if they had a job.

Americans pay 25% of what they make towards taxes. When you give your child their earned money, you take out 25% of whatever they made. This helps prepare them for their first job.

This tax money can be put into a clear jar to represent how much taxes were taken out. There are different things you can do with this ‘tax’ money. You can start a savings account for your child, give them their ‘tax return’ around important dates, or whatever works best for your family.

With this activity, your child is understanding the importance of working and what taxation is all about.

With these tips and activities, you will help your child make smart, financial decisions for their future.

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