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How to Explain Taxes to Your Kids

Paying taxes is a piece of cake.
Paying taxes is a piece of cake.

Paying taxes is a piece of cake.

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Benjamin Franklin said, “Nothing is certain except death and taxes,” and just as your children will gradually learn about mortality, they will also find out about taxes and other financial issues.

Like many financial concepts, paying tax may at first be rather difficult to grasp. Indeed, many adults find it hard to accept that the government receives a certain percentage of their hard-earned money before they even see their paycheck. In fact, many question why it’s better to work “on the books” rather than “under the table.”

Paying taxes is a piece of cake.

Try teaching your kids about taxes by relating it to something that they understand and like: cake.

So take them into the kitchen and bake a cake together. Then, explain that this chocolate cake can be compared to the economy. This is the money that belongs to the whole country and everybody needs a slice – the schools, the street cleaners, the hospitals, and the army. Without any “cake,” the government can’t provide any of the things we need.

When you cut a slice for your child, take a small piece off and say that this is like taking a small piece from your wages and giving it back to the country. If no one would part with a small piece of his slice, there would be no cake/money for everybody else. We all use the sanitation services, schools, hospitals, and sidewalks that have to be maintained. As most people wouldn’t simply volunteer to give this money to the government even though they use its services, this tax is levied before you receive your paycheck.

Then ask your children how much of the cake should go back into the government. What if there is a family with a father, mother, and two children? Wouldn’t they need more cake than a single person living alone? And what about a person who gets a huge slice of cake because he has a well-paid job, as opposed to the worker who earns the minimum wage? Would they pay the same amount or would the slice that’s removed be different for each of them?

Once you have used the chocolate cake to illustrate the various ways in which taxes are levied and determined, you and your kids can sit down and enjoy the revenues you have produced. Apart from enjoying a fun time, your kids will learn a very valuable financial lesson…sometimes you can’t have your cake and eat it too.

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About the Author: Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd, a financial planning firm located in Jerusalem. He specializes in working with clients in New York, Florida, and Israel and is a licensed financial professional both in the U.S. and Israel. Securities are offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, SIFMA. Accounts held at Pershing LLC., Member NYSE/SIPC, a subsidiary of The Bank of New York Mellon Corporation. Neither Profile nor PRG gives tax or legal advice. Before immigrating to Israel, it is advisable to consult with a tax attorney who is knowledgeable about Israeli law. Doug’s newest book The Expatriates’ Guide to Handling Money and Taxes is available at www.expatguidetomoney.com. He hosts a weekly finance show, Goldstein on Gelt, on internet radio. Listen live or download podcasts. Toll-free from U.S. 1-888-327-6179, Jerusalem: (02) 624-2788. Follow on Twitter: @DougGoldstein or contact at doug@profile-financial.com.


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