Taxes, Saving, and Giving
Benjamin Franklin, once wrote in a letter to Jean-Baptiste Leroy in 1789, “In this world nothing can be said to be certain, except death and taxes.” Though, at five or six years old, nothing is certain, let alone mortality AND taxes. Both made about as much sense to me as having to go to bed at 8:00 PM. In an article titled, “7 Ways Smart Parents Teach Their Kids About Money” author Kimberly Palmer explains how one CEO handles allowance with his family and in turn introduces his kids to taxes, saving, AND giving.
“Steve Schaffer, CEO of the coupon website Offers.com, created a unique allowance system to help teach his three children, ages 10, 12 and 14, about money. He and his wife dole out $5 plus 50 cents per year old each child is. (For example, the 10-year-old receives $10.) Then, each child has a quarter of his or her money deducted for “family taxes,” and they have to put 15 percent into a savings account. An additional 10 percent goes toward giving. Each kid can then decide how to spend the remaining money.”
Want vs. Need
We all know this feeling. Do I really need a new phone? Do I really need to go out to dinner? Do I really need – NO. The answer is usually always NO. But, for kids learning the difference between want and need is like trying to explain, well, again, why they have to be in bed at 8:00 PM. The same CEO that teaches his kids about taxes above uses allowances as a tool for his kids to distinguish want from need. Schaffer sees buying lunch at school as a want rather than need. The parents provide everything necessary for the kids to take lunch to school. If they want to buy lunch at school, they have to pay for it themselves. “I can’t remember the last time a child bought lunch,” says Schaffer. The kids have the option to use their allowance to buy lunch at school or to take lunch from home and use that money elsewhere. In addition to teaching his kids this lesson that will last a lifetime, Schaffer estimates saving around $5,000 per child through their educational career.
Living within their means
The concept of not spending more than you make seems pretty simple, yet according to an article in Nerdwallet, “The average US household credit card debt stands at $15,863, counting only those households carrying debt.” That’s quite a bit of living beyond, and perhaps not as simple of a concept as we all thought. One way to instill this best practice is through allowance and budgeting. In a blog on Parents.com Jayne Pearl, coauthor of Kids, Wealth, and Consequence uses a trip to the toy store as a learning opportunity. “The best way to teach kids to start managing money is to give them some. If they blow their allowance on a new Star Wars figure and don’t have enough left for a DVD they really want, that’s actually a good thing: ‘They learn firsthand the consequence of overspending,’ says Pearl.”
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