Taxing Our Kids Prepares Them for The Real World
No, the title is not weird. It is an actual practice that My wife and I do in our household.
Basically, we tax our kids’ allowance. We ask them to put some of their allowances in a family fund. A fund that we use to buy family-related items. In the same fashion, in which we pay our taxes based on our income.
It might sound weird to you (the reader), but we do not see it this way — we believe we are preparing them for the real world, and we teach them in an early stage the importance of taxes in society.
How do we tax our kids?
We ask our kids to help us around the house. They have chores, which they have to do on a daily or weekly basis.
We consider the weekly allowance as their salary for helping out around the house. We ask them to pay 10% of their weekly allowance as taxes towards our family fund. We all pay towards this family fund.
We use this fund in case we need to buy something new for our home, such as a new washing machine or a new countertop. We can also use this fund to pay for our family vacation. The kids feel great because they’ve contributed to our family vacation or towards the countertop.
If we have different opinions regarding how to spend the family fund, we actually sit down together and vote towards how we want to spend the money. Yes, we did spend it once on a family trip to Disney Land.
We do it to the full extend. They get a monthly allowance report with the amount of taxes deducted from their allowance. We also share with them a quarterly report of the family fund.
As in any committee, we explain the budget and what is required for our household.
Why do we tax our kids?
We decided to tax our kids because we wanted to cry after we received our first paycheck. I planned a lot based on my first paycheck, and I couldn't do half of the things I’ve planned.
We keep saying that schools need to prepare kids for the real world and that schools are responsible for teaching financial literacy. I can't entirely agree that schools are the prominent educators here. I think each family can also help their kids’ financial literacy, and teaching them all about taxes is the first step in a better future.
We explained the concept of taxes within our small community (in this case, home). We use the example to describe taxes on a bigger scale (The country we are currently living in).
On top of that, they get to vote on how to spend the money. Thus, they feel involved in the management of our small home.
Should you start doing it?
Yes, it would be best to start teaching your kids financial literacy, and taxes are apart of financial literacy.
Let them understand the concept and let them be part of the home's decision-making, especially the decision-making regarding the family fund. As parents, put two different options on the table based on what you believe is essential and let all family members vote on spending the money.