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 misconceptions 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,” one for “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? Let the kids or grandkids come up with some ideas.
You can also challenge the older kids or grandkids to go online and share some of the weirdest tax laws around the world. One of my favorites is the European Union (EU), a cow flatulence law. In order to curb the detrimental greenhouse gasses from cows, several EU countries have levied taxes on cow gas; people obviously pay the taxes. The highest rate is in Denmark where each cow can cost a taxpayer $110. I also get a chuckle from the Russian tax on beards, or our own law in Kansas that one can get a tax break for not tethering their hot air balloon to the ground.
I realize that taxes can be taxing for us, which is not a laughing matter. The earlier you can start the conversation with the next generation, the easier it will be for them to embrace it, plan for it, and be honest about it. You want to avoid what Will Rogers quipped, “The income tax has made more liars out of the American people than golf has.”