Help Your Kids Understand Taxes

At some point, your kids have probably watched you:

  • Mumble under your breath (or louder!) as you work on your April taxes
  • Gripe about how much tax disappears from your paycheck
  • Make a not-so-nice comment about sales tax added to your purchases

Sound familiar?

Taxes can be an irritation, for sure. However, it’s also important to remember—and to help our kids understand—that a lot of our tax money goes to helpful services from which we all benefit. Here are some ways to help your kids understand just what taxes are all about:

Play the “Who Pays For It?” Game

Keep the tax concept super-simple for young kids. Whenever you see a fire truck whiz by, or pass a favorite park or community swimming pool, ask your kids: “Who do you think pays for firefighters to help us?” or “Who pays for our swimming pool to stay clean and have lifeguards?”

The answer is “Us! Everyone who lives in our town helps pay for those great services and places. A little bit of the money we make from our job is automatically paid to our city/county/state. That money is called ‘taxes.’” (Now, don’t you feel a little bit better about paying taxes when you think of the money that way, too?)

Create a Family Tax

Financial expert Neale Godfrey, president and CEO of GreenStreet Commons, suggests a Family Tax as a hands-on way to help middle-school and older kids start understanding taxes. When you give your kids their allowances or pay them for extra chores, require that a small portion of the money (maybe 5%) be set aside in the Family Tax jar. You (the grownups) may want to add some funds to it, too.

Every few months, make a point of spending Family Tax money on something that benefits everyone in your tribe. One suggestion: A family pass to the pool, zoo or local science museum. The idea is to help your kids see that taxes do useful things.

Review Your Teen’s Paycheck

Once your kid starts working, taxes will quickly become a reality. They’ll undoubtedly wonder why they’re losing so much of their paychecks to taxes. At this point, Godfrey suggests explaining a bit more about tax brackets, Social Security withholding (FICA) and more. A few sites that might help: IRS Understanding Taxes and IRS Tax Form Simulations.

By the way, unless your teen is making a ton of money (check IRS Publication 929), you might want to help them fill out a W-4 form. That way, they can claim that they’re exempt from federal and local taxes (line 7). The result: your teen will be able keep more money from their paycheck and not have to wait for a tax refund in the spring.

However, your kids should fill out tax returns even if they don’t owe the government any money. Read more about At What Income Does a Minor Have to Fill Out an Income Tax Return?

 

(photo courtesy © Chris Potter cc2.0)

How To Talk Money Management With Your Kids

The money talk — not as scary as the birds and bees, but still a lot to think about. We get it and so do other parents. In fact, 49% of parents say they’re not sure how to explain money to their child.[1] Enter: Spring Break. It’s the perfect time to open the conversation, starting with budgeting. 

EXPLAIN WHY BUDGETING IS IMPORTANT

If you’re like 67%[2] of Americans, you keep a budget — nice! Time to get your kids on board. But how? You could start off by explaining why a budget matters, because chances are they’ll ask.

Conversation Starter: “When you make a budget, you know just what you’re spending, and how much you need to save for things you want, like those AirPods.”

EXPLAIN COMMON BUDGETING TERMS

Fixed Expenses and Variable Expenses — ring a bell? Maybe, maybe not. Either way, they’re important words to teach your kids about budgeting. Break it down into Spring Break terms, and they’ll get it.

Conversation Starter: “A Fixed Expense is one that doesn’t change. Like, our plane ticket. A variable Expense is one that does change. Like, meals. It can go up or down, depending on where we eat.”

EXPLAIN WHY SAVING MONEY IS IMPORTANT

Budgeting for Spring Break is one thing — saving for it is another. Instead of simply handing them money (and hoping they stash it away), show them the importance of earning and saving.

Conversation Starter: “Saving money lets you buy things that you might not have enough money for right now. When you add a little bit of money to savings over time, it helps make future purchases possible.” Tip: Name something you’re saving for, and how you plan on reaching your goal.

GIVE THEM THE GREENLIGHT

After you have the money talk with your kids (you’ve got this!), think about getting them a debit card — like Greenlight. Unlike a credit card, they can only spend what’s on it. (More on the differences between credit and debit here.) The best part: debit cards like Greenlight empower your kids to make smart money decisions, long after Spring Break ends.

With the Greenlight debit card and app, your kids can:

  • Set Savings Goals. Even staycations cost money. Teach them to save for it.
  • Learn to Make Trade-offs. Keychain or shark-tooth necklace? It’s their call.
  • Earn Allowance Through Chores. Greenlight kids who earn allowance save 26% more.

As they start learning about money management, you’ll be right there with them. The Greenlight app lets you:

  • Control Access to ATM’s. Are they taking too much out? Set limits.
  • Choose Stores. You decide where they can and can’t spend.
  • Get Real-Time Notifications and Monitor Their Spend Levels. Perfect if they’re vacationing without you.

GET SET FOR SPRING BREAK

Join Greenlight today and help your kids get a head start on budgeting for the break — and for life! Sign Up Now

[1] Investopedia.com [2] Debt.com

Why kids should understand the difference between debit and credit cards

Today, it’s not surprising that Americans have shifted from the traditional use of cash to more modern methods of payment like debit and credit cards. According to Fundera, 70% of consumers prefer using cards as a form of payment and 54% prefer using debit cards. 

Debit and credit cards provide convenience, more security than cash and are accepted nearly everywhere. It’s safe to say that while cash may not be going away, teaching children the basics of what credit and debit cards are now will prepare them to use cards responsibly in the future. 

Prepare them for the reality of credit cards

A credit card is a form of payment issued by a bank or business that allows the holder to purchase things on credit. When making purchases with a credit card, you promise to pay back the money you owe (plus any interest!) at a later date. 

When you carry a balance over month-to-month, the lender charges you interest on top of the amount you owe. Carried balances and interest can add up quickly and many families find themselves in a position where it’s tough to pay credit cards off.

In fact, 41% of America’s households have credit card debt. It’s important to introduce your kids to the concept of credit cards while they’re still in the nest – that way, they are prepared to carry one later in life. 

When it comes to teaching your kids, we recommend starting their money management adventures with a debit card. This protects them from overspending because they can spend only the money they have, and allows them to build healthy habits early before they enter the world of credit.

Teach them to manage money with a debit card

Debit cards provide more security than cash and fewer worries about debt than a credit card. A debit card is a form of payment that deducts money directly from a bank account to pay for a purchase. With debit cards, owners can have easy access to their available funds and can often also put money aside for something special using a savings account. 

Kids need to learn how to manage a debit card just like they need to learn how to drive. Whether your child runs their own lemonade stand during the summer, starts their first job or gets an allowance, a debit card can help kids learn to manage balances, save money, and more!

How Greenlight helps

Greenlight helps kids learn how to manage money and form strong healthy habits that will serve them as adults. According to Greenlight CEO Tim Sheehan, the reason Greenlight is a debit card is to “help kids learn to effectively manage the money they’ve earned, as opposed to spending money they may not have.”

Parents are the primary account holders and have the controls to choose where their children can use the card, manage chores and allowances, set parent-paid interest rates on savings, and more. Kids are able to monitor their balances, create saving goals, and learn how to make financially-smart decisions in a safe environment with their parents’ guidance. 

How parents send money using the Greenlight debit card.

Mistakes are just mistakes

With Greenlight, there is no chance for a child to overdraft or overspend since we decline any purchases greater than the child’s available balance. Mistakes are just mistakes! Parents get alerts when kids try to spend more than they have to spark conversations about budgeting and wise spending. 

Parents are able to allocate funds to their child’s “Spend Anywhere” account or choose specific stores where kids can spend and how much they can spend. They can even help their child create a savings goal and contribute money to meet that special goal. 

Ready to teach your child how to manage money responsibly?

Join Greenlight today to start adventures in personal finance with your kids!