Across the country, millions of American families are gathering up their W-2s and 1099s and sitting down to the task of filing their tax returns. Although many of us gripe about the task, this yearly ritual affords an opportunity to teach young people some valuable financial skills.
Remember your first official paycheck? You probably spent a fair amount of time counting up the hours you had worked and calculating how much money you’d make based on your hourly wage. Ten hours a week for two weeks, at $12 per hour, means $240! We bet you were surprised when you opened the envelope and discovered a completely different, lower figure. You weren’t expecting that someone would be giving away your hard-earned money without your permission.
Few teenagers know what exactly their employers are withholding from their paychecks. State and federal income taxes, social security, unemployment insurance, workers’ compensation… all of these deductions add up to less cash in the bank. Without understanding where the money is going, this can be a frustrating—and confusing—experience.
Teach a young person what to expect from his or her paycheck by explaining the different types of deductions, and discussing the pros and cons of taxes. They might feel a little better about the whole process when they learn that the taxes they pay are funding public schools, paying for repairs of roads and bridges, and keeping their favorite parks green.
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