That time of year is upon us. Yes, it’s tax season! We always seem shocked by the fact that tax-time has crept up on us so unexpectedly. Nevertheless, Benjamin Franklin once reminded us that, “In this world nothing is sure but
death and taxes.”
Paying taxes is real and it is the law, according to the U.S. [Constitution.](http://www.irs.gov/pub/irs-pdf/p2105.pdf “Constitution.”) Therefore, if you don’t pay, the Internal Revenue Service (IRS) has right to go after you or your estate to get what is owed… plus penalties… forever. Paying taxes is also a practice and, frankly, a habit that has to be built into any budget. It is never too early to start that discussion with the next generation, because if you don’t, they may get the wrong impression and feel that they are the victims, as if paying taxes is an injustice. We grumble about taxes this time of year and we need to be conscious of the affect that attitude has on our young children.
I remember some years ago, when I was on Oprah’s show and the topic of teaching kids about taxes was raised. I told Oprah that, if we didn’t teach kids what taxes were, they would grow up with misconception based on the feelings we inadvertently convey about taxes. I challenged her to choose a kid from the audience and ask them, “Are taxes good or bad?” We did, and a young 10-year-old child leapt to his feet and proudly declared, “Bad.” The lack of understanding probably followed this youth into adulthood, suffering from what I call, “paycheck shock,” just as I did early in my career. I gasped at my first real paystub exclaiming, “Who is FICA and why is he taking money out of my paycheck?” Obviously, I didn’t get the tax lesson from my parents. Avoid this pain for your kids and grandkids.
Start by discussing a simple definition of taxes: *It is the money we must give the government, so that it can pay for things like
schools, hospitals, sewers, bridges, sidewalks, firefighters, and police. All countries need money to pay for services all people use.*
Learning about money is learning about values, and one of those values is citizenship. Taxes help a country to pay its bills for the
services that even rich people could not pay for on their own. Taxes may be too high or too low, but that is not the purpose of this exercise.
The next step is to explain that there are different kinds of taxes; personal taxes on the money you earn, taxes on the interest you earn from your investments, taxes on your property, and taxes on certain things you buy, etc.
Now for the practice of paying taxes… Hopefully, your kids and grandkids have been doing chores and earning some of their own money via my allowance system. I have the kids divide their earned money into “Jars” to make their budget more visible. One jar is for “Charity,” onefor “Quick Cash” or instant gratification, another is for “Medium Term” savings (pushing off instant gratification and learning to save for something larger), and “Long Term” savings (e.g. college). It’s now time to introduce the Tax Jar. I give them a break and put them into a 15% tax bracket. So, for every $1.00 they earn, they have to put 15 pennies into the Tax Jar.
What do they do with this money? (One of my cynical friends said to teach them to flush it down the toilet.) Tell your young kids and grandkids that they are going to think of their family like it is a small village, which gets to vote on how to spend some tax money for the good of the community. Don’t let them select a very expensive option, because there won’t be that much money. Maybe the “community” can buy some energy-saving light bulbs to save even more money for the family? Or maybe they can buy some house plants for the whole family to enjoy?