The tax system in Canada is complicated. Even for the most mathematically-minded adult, it can be confusing to figure out how it all works. As bewildering as it may be for you, you can only imagine how it must seem to a child. But the reality is understanding taxes is a key part of financial literacy and by teaching your kids the basics of what taxes are, you’ll start to build in them a solid base for lifelong financial literacy. Whether its income tax, sales tax or property tax, it’s important to teach young Canadians how it all comes together.
Using a fun game is always a good way to start. Gerry Vittoratos is a tax specialist at UFile, a Canadian tax filing software company. He suggests starting to talk about taxes when your kids are around 8 years old, Vittoratos says parents should start by playing a simple fun task with chocolate, because chocolate makes everything better, right?
He says take 10 pieces of their favourite chocolate and put them in front of your child. Tell them this is your pay. Then take 3 of those chocolates away, and ask them would you like to get 10 chocolates every two weeks, and I take 3 away every time, or just keep the whole 10 right now.
Most likely your child will opt to take the 10 minus 3 chocolate option. This, Vittoratos says, starts to build the base of understanding of how income tax works.
You are given a salary, but part of it is always committed to taxes. You can’t keep it all, but you can keep most of it.
In the beginning start simple with telling your kids how taxes work. For example, tell them about how roads have to be built and repaired on an ongoing basis, so that you can take them to their favourite places. That could be grandma’s house or school or their dance practice, make sure it’s something they enjoy driving too. Explain how part of the money you give up when you are paid, goes towards making sure those roads stay safe for them and everyone else that uses them.
Once your kids start to grasp this idea, start telling them about libraries and hospitals and how they are run by tax payer money. Vittoratos says keep up the games by asking kids to point out places that their tax dollars are helping.
Teaching kids about the INS and OUTS of the tax code is not going to win you any points as a parent. Vittoratos says kids are likely to tune out and not want to learn if you get too much into the weeds of why taxes are necessary. But when they get to high school it is important, to start teaching them about the type of taxes we all pay. Sales tax when we consume something, income tax when we earn something, property tax when we own something. All serve their own function, but all taxes are necessary to make communities run smoothly. The hope is to destigmatize taxes, and get kids to realize they're a good thing.
Vittoratos says games like Monopoly and Game of Life are a good way to keep kids interested in how the economy runs. At this point there is no need for a dedicated tax course, but Vittoratos is a big believer that an introduction to personal finance with tax lessons built in would be help kids get ready for the real world. If a course like this is not available at your teenager’s high school, encourage them to get a part time job, where they will see firsthand how taxes are deducted off their paychecks.
Retirement is much further down the road for young kids, but parents teaching their kid financial literacy should be encouraged to know that Statistics Canada recently found a higher level of financial knowledge is more often associated with a higher degree of retirement preparation among labour market participants.
Financial knowledge also means all the other big financial decisions will make more sense when they are eventually faced with them. Buying a house, getting a mortgage, saving for their kid’s education is all much easier once they have a solid financial base.
For Canadian parents looking for additional help in understanding how to teach their kids about taxes and all other aspects of finance, they can visit the Financial Consumer Agency of Canada website. It was established in 2001 to protect and educate consumers of financial services. They can also go to ABC Life Literacy Canada, a non-profit organization that inspires Canadians to increase their literacy skills.
It is tax time, and the pressure to get everything filed by the deadline can be intense. By taking some time to explain to your kids why filing your return is important, you will be passing on key tax lessons they can use as they become adults.