Paying taxes is something your kids will have to deal with as adults. So why should you wait until your child’s first job to teach them about the basics of earning money and taxation?
You shouldn’t. You don’t have to either. Teach your kids by charging them the “Parent Tax.”
The Parent Tax is a simple concept: Children pay a flat-percentage tax to their parents on any money that comes into their possession. The percentage is up to the parents, and the tax can be levied on birthday money, allowances, and any other source of income.
Some people will be up in arms over the suggestion that they should tax their children, but the Parent Tax is a tool that parents can use to educate their kids about personal finance issues. According to a survey of high school seniors performed by Capital One:
“Eighty-seven percent of students report that their parents are their primary resource for information about money management and personal finance issues, but only 22% of high school seniors polled report that they talk to their parents about money management ‘frequently.’”
Here are three key reasons for the Parent Tax:
It Prepares Kids For Their First Real Paycheck
My parents didn’t impose the Parent Tax on me, so I was blindsided when I received my first paycheck and saw all of the withheld state, federal, social security and medicare taxes! I was severely disappointed. Children who pay the Parent Tax, however, are aware that taxes are a part of life and don’t expect to receive every dollar they earn in their paychecks. You can even use the tax to help your kids understand why they pay taxes.
It Helps Kids Feel Like They’re Contributing
Raising kids isn’t cheap and most kids have no clue how much money it costs to raise them. The Parent Tax helps kids understand that housing, food, and clothing isn’t free. Kids will take pride in knowing that they’re contributing to the family. By keeping track of how much revenue Parent Taxes generate for your family, you can show your children what that money pays for. For example, if the Parent Tax raises $100 a month, you can show your kids that $100 a month could pay for a week’s worth of groceries, or one month of electricity, or part of the cable TV bill. The tax could even be used to pay for a family trip to Disney World.
Your kids may not agree with what their taxes are paying for. They may think that they shouldn’t have to pay for the broccoli they don’t eat — but this is a great opportunity to teach your kids that adults don’t always agree with everything that their taxes pay for either!
It Acts as a Forced Savings Account
Of course, I’m not actually suggesting that you spend the money that the Parent Tax generates. Instead, use that revenue for your child’s future. Invest it in a college fund — just don’t tell your kids until they head off to college. Then surprise them with the resulting investment account statement. They’ll take pride in knowing that they were the source of this money. Hopefully, as a result of the money discussions the Parent Tax initiated when your kids were younger, they won’t end up blowing the money on partying.
And if your child doesn’t go to college, then he can use those Parent Tax funds to cover the security deposit and rent on a first apartment, or to buy affordable furniture.
Don’t Be The Parent That Doesn’t Talk About Money
Please, don’t be the parent that doesn’t talk to their children about money. Institute the Parent Tax today. Start those money conversations!
How much would you be willing to tax your children?
About the Author
Lance Cothern is a Virginia licensed Certified Public Accountant (CPA). He runs his own personal finance blog, Money Life and More, that covers financial topics such as teaching kids how to write checks and how to earn extra money on the side by taking advantage of credit card rewards.
Photo Credit: familytreasures