Taxing My Five-Year-Old Son

Teaching Kids Valuable Financial Lessons by Deducting Tax from their Allowance

Kids demand money from us all the time for things they need (or just plain want).

My husband works in accounting and finance and I am a financial planner, so we feel it is extremely important for our kids to learn about managing money. So, we decided to start our 5 year-old on an allowance about a year ago.

First of all, it is not about doing chores. We believe that helping around the house is everyone’s responsibility and we don’t get paid for it. We also don’t want them demanding more money for a job when they get older if it is something they don’t want to do or if they feel underpaid for their work.

But, for some reason, when I explain our approach to allowance, everyone laughs!

We started with an allowance of five dollars every two weeks, on the same day as daddy’s payday – which means we actually have money that day. However, our son actually received three dollars, along with a pay stub (of course we had to read it for him!). The pay stub explained that while his allowance was $5, there was a withholding of 20 per cent, or $1, for taxes. We explained to him that everyone pays taxes and that the money goes to the government for the provision of services. Mommy and Daddy are the rule makers and service providers in our house, so the taxes help offset the costs of things like meal making, bum wiping, brushing teeth… Another 20 per cent ($1) was deducted from his allowance for long-term savings. We explained that most employers provide for retirement savings accounts or some additional savings plan. All of the $1 for his long-term savings are put into a jar and periodically deposited to his bank account. Now, he gets his $3 every two weeks and never asks where the other $2 is gone. Of course, he spends the $3, sometimes before payday. The lesson on use and cost of credit will be coming when he turns six!

We think that he is learning the right things. He has a little bit of spending money for things he needs, like LEGO. He also has money in the bank so if there is something he really wants. Especially as he gets older, he will be able to get it himself without begging Mommy and Daddy to give him the money.


Kathleen Bégin is a Financial Planner and mother of three boys; aged 6; 4 and 1.  She lives with her husband and boys in Mississauga; Ontario. Kathleen's company Begin Financial Planning Inc. focuses on financial planning issues for young families; such as saving for education and retirement; dealing with mortgages; and debt management. 

Kathleen is also a professor of Finance at Sheridan College.  She can be reached at [email protected].