It’s Tax Day! Here’s hoping that you get a nice big refund! Tax Day is a great day to get your kids involved as well – taxes are an important part of financial literacy as kids move into their teen and young adult years. Here are a few tips from Steve Siebold, who is author of the book Secrets Self-Made Millionaires Teach Their Kids, and a self-made millionaire who has interviewed more than 1,200 of the world’s wealthiest people over the past 34 years on how to teach your kids about taxes!
Explain the concept of taxes
Children, particularly young children, might not know what tax is or the purpose it serves in society. As a parent, it is your job to help them understand this concept and its role in fiscal actions. Explain the different types of taxes at an age-appropriate level. Sales tax is easier to explain because children can see the process when they make a purchase. Explain to them why something that costs $1.00 will ring up as $1.06. Explain the process of taxation to meet their age and level of comprehension.
Incorporate a tax element into the money your children earn
If your children earn an allowance, set some rules for their earnings. If they make ten dollars a week, institute a rule for savings and an applied tax. State that out of the ten dollars, one will go to ‘taxes.’ You can explain that this money may go towards a specific household project or towards a greater good in the community. This helps kids understand from a young age the purpose of taxes. They are less likely to be surprised by the concept when it arises later in life with their earnings.
Teach them how to invest for future growth
When the tax refund appears in the mailbox, make it a family affair. Segment off a certain amount to make investments for the future. Involve your children in the process to help them practice. Investments in the stock market and other endeavors are a great way to potentially turn that money into more money down the road. Not only does investing reap financial benefits, but it can also teach your children the importance of patience over impulsivity with finances.
Don’t ignore the fun aspect
While one part of the refund may go towards investments for future gains, at least a part of the remainder should be allocated to something fun. Make this be something the entire family can enjoy. This helps create a positive relationship with tax money and creates a fun ritual for the family. Fun is a critical component to enjoying life and indulging in a cruise or family vacation can strengthen the bond of your relationships. Recharging your batteries every now and then enables you all to have a more peaceful mindset in your daily lives.
Create a positive relationship with the process and model it
A strong balance of enjoyable activities and education around money establishes a strong foundation for your children’s relationship to finances. Don’t cause them to fear taxes, but merely accept them as a part of life and earning money. Explain to them how if you are paying higher taxes, that means you are making more money. Model positive relationships to money and taxes to foster better future fiscal relations for your kids.
Use the money to better yourself
When the tax refund arrives, don’t think narrowly about your possible investments. Investing in yourself and your future is a pivotal way to model self-worth. Seek programs with which you can improve yourself. These may be books, webinars, audio programs or events. Take on financial coaching to continue your path to success. Explain this process of investment to your children to enable them to see the value in investing in themselves, too.
Make your own goals and include your children in the journey
Use tax return season to set financial goals for next year. Aim your sights on entrepreneurial endeavors. This means you have to pay tax rather than get a return, but it also means you make more money year-round. There are numerous more positives to being your own boss but take it one step at a time. Include your children in different phases of your financial journey to help them understand more clearly what they will face in their future.