Teaching taxes to kids is an important step to raising fiscally responsible young adults, but it can be a confusing lesson. Even adults often find themselves asking, “Why am I paying for this, again?” Teach your kids what taxes are, how they’re calculated, and why they’re important so that they aren’t hit with a harsh reality once they begin to pay for things themselves. Here’s how:

What are taxes?

The next time you and your child purchase a toy or treat at the store is the perfect time to start talking about taxes. Begin the lesson by giving your child a budget—$5, for instance. Let them know that’s how much they can spend. Chances are, your child is going to select an item that costs exactly $5. They want to get the most bang for their buck, after all! When they do so, explain to them that although it says $5, the actual cost is a little bit more. When they ask why, tell them that they need to pay an additional charge known as taxes. Initially, it’s not terribly important your child understands what taxes are, but simply that they exist—and that everything they buy will have them.

Next, help them select an item that will ring up within their price limit. Ask them to memorize the pre-tax price of the item. Once you get to the register, ask them to memorize the total cost of the transaction after tax. When you’re home, sit down and help them calculate the price difference between the pre-tax and post-tax cost. Once they find the number, let them know that’s what they paid for tax.

How do taxes work?

Naturally, your child’s next question will be about how taxes work. When your child begins to learn about percentages, you’ll be presented with the perfect opportunity to help them learn how taxes work.

Again, take your child to the store and ask them to pick out an item. Have them memorize the pre-tax and post-tax prices. When you’re home, ask your child to find the difference between the two items. Once they’ve calculated the cost of tax, ask them to calculate what percentage of the item cost is. Explain to them that the percentage they’ve calculated is the tax percentage in your state.

What are taxes used for?

Now that your child understands what taxes are and how they’re calculated, they’ll want to know what they’re used for. There are a million and one opportunities to show your child where their tax money goes. Next time you go to a public park, explain to them that their tax money helps keep it so clean. When you drive past construction, explain to your child that their taxes paid for that. Your child will be elated, knowing that they make such a contribution to the world.

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