Talk Taxes With Your Kids
It’s that time of year again. A time many people dread.
Although I might be in the minority, I actually enjoy tax season. I find it to be a great opportunity to take a really hard look at the past year and assess what financial goals achieved, where I’ve fallen short or area’s I can improce upon.
When you have all the hard numbers in front of you it’s a lot easier to determine if you’ve both spent and saved your money wisely.
Every year at tax time I sit down and go through those numbers. What money came in, what did I spend on, how much do I have left? Then I give some pretty hard consideration to whether or not the money that I did spend was money well spent.
Did I get sufficient value from my experiences during the past year, comparative to the amount of money that went out? Is my money being used in a way that reflects my values and helps me achieve what matters most to me?
After I answer those questions, I use that data to help formulate my individual and family goals for the coming year.
Because I do a lot of our tax prep on a computer in our home, when my oldest son was 5 he started asking me a lot of questions about why exactly I was suddenly spending so much time sitting in our office. I explained that I was preparing documents for our taxes, which brought on a whole slew of questions about what taxes are and why we have to pay them.
It got me to thinking that tax season was not only a great time to look at my own financial goals, but also to start having conversations with our son about making his own financial goals for the year ahead.
To facilitate some discussion and provide sone structure to the process, I started a simple notebook for him. On just a few pages I wrote out some questions and tables to help guide him with his planning. Once I had written out the rough structure, Mike and I sat down with him to do his “taxes”.
On the first page of the book I put a small table with spaces for all of the money he had saved over the previous year. When we sat down together he counted up each denomination and wrote in the total quantity along with it’s monetary value.
This alone was a great exercise! We taught him how to properly sort and count his money, and he had to work hard to calculate the total value of each denomination.
After he had determined the amount of savings he had compiled, we moved on to discussing how money is a tool that allows us to experience or obtain the things in life that bring us the most value. In order to set good financial goals that will bring us value, we must first clearly define what is important to us.
So I asked him to consider what 3 things would be most important in his life in the coming year. Because he was only 5, I put a list in the book of possible options to help him out. The list included family time, friendships, learning new things, helping others, going on adventures, happiness etc.
After reviewing the list for quite some time he decided that the 3 things that would be most important were: family time, adventure, and happiness. Some great choices for a 5 year old! All three choices were promptly written down into his book.
Then we asked him, what things would he like to do with his money that would help him experience more family time, adventure, and happiness?
From that question he decided that in the coming year he wanted to go on a family vacation, go to a fun arcade/adventure park that he loved, and learn how to snowboard. Listed in order of priority, those three goals were put into the book as well.
This gave us some opportunity to discuss how expensive his selected goals were, and also reach some agreements about how much he would be responsible to contribute to each goal. Some were entirely his responsibility (the adventure park), while others he agreed to contribute an age appropriate amount (the family vacation). Each agreement was then written down into the book as well.
Our focus then turned to savings, and based on his savings from the previous year he set some lofty but attainable goals for the year ahead.
The whole process took us about an hour and a half. But the conversation it generated was invaluable. Even better, our son was interested in the dialogue because we were giving him some control in deciding where his money should go.
Each year we’ve repeated the process. Looking first at the goals he had set the previous year and assessing how he had done in terms of accomplishing those goals.
Ironically, not only is tax time something he now looks forward to each year, he also continuously reminds me about it if we get later into the tax season and haven’t done it.
The added benefit is that when he gets money for birthdays, Christmas or other special occasions, he already has a financial plan in place for what he wants to do with that money. So he’s not asking us to go down to the store immediately to spend it on the first toy he see’s.
If you have kids, seize the opportunity to have these discussions early in life. The time invested is negligible, but the financial lessons they will take away from those conversations will have positive lifelong impacts. Not to mention that one little tax book will be a source of some pretty cool memories to look back on in years to come.
If you don’t have kids, using tax season as a time to assess your own priorities and financial goals is a strategy worth implementing for yourself. I use it every year to assess where I’ve been and make sure my financial goals are aligned with my current priorities and values.
Consider it an annual performance review, helping to identify areas of financial strength and weakness to help guide your planning for the future.