How to Teach Your Kids about Taxes and Money Matters

March 11, 2009 by Marie Claire

The importance of teaching children the skills of financial management cannot be overemphasized. Teaching children about money, given all the new and complex choices that exist for people today, is more important than ever before.

Children need a firm foundation in understanding the value of money and knowing what to do, or, what not to do with it. This can only come through conscious, explicit teachings. Too many children think their parents have an endless supply of money for them to tap into. When denied a purchase, they think the parent is being mean. Setting up a structure and helping your child understand and respect money is a chore, but it will pay off in the long run.

One way of teaching your kids about money is by showing your kids your pay stub! Sharing information about what you earn and what you pay in taxes with your children can be highly educational for them. This information gets kids thinking about the realities of living within an income.

Your pay stub helps kids see not only what you earn each month, but also how much goes out for expenses, like taxes. You can then have discussions about the costs of rent and mortgages, utilities, food, and everything else. Your children may better understand your financial constraints, and, as a result, they’ll be more responsible for earning money, paying taxes, and meeting monthly bills. You don’t do them (or yourself) any favors by keeping them in the dark about financial matters. In the absence of information, children have no concept of the amount their parents earn. Some have outrageously inflated ideas of how much their parents make — especially children whose parents eagerly fulfill their requests for purchases.

Also, avoid punitive savings schemes, like punishing them by reducing their allowance for buying the latest edition of their favorite comic book. The first step in making children financially responsible is to take advantage of human nature rather than ignoring it or futilely trying to change it.

Some efforts by most parents to teach most kids about money are doomed from the start. Those efforts usually begin (and often end) with the opening of savings accounts for their children. The parents suddenly decide that the time has come to impose order on their children's chaotic financial condition, so they drive the kids down to the bank and sign them up for passbooks. The children are intrigued and excited at first by the notion that a bank will pay them for doing nothing, but their enthusiasm fades when they realize that the interest rate is very small and, furthermore, that their parents don't intend to give them access to their principal money. To a kid or a teenager, a savings account is just an instrument or a magic box that vanished birthday checks and some of their allowances.

Instead, parents should put their kids entirely (almost) in charge of their money, and watch them learn how to spend and save. By making them in charge, you empower them to make the right financial decisions. Remember that it is not all about creating or investing money but making the right financial decisions to attain your objectives in life. And money is just a tool to attain those objectives.

(Personal Finance Management Guide by Marie Claire Cooper. It's all about good reading and smart information.) http://personal-finance-management.blogspot.com/

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