Use CHORE/WORK ENVELOPE to teach kids about LIFE
You may recall what fun I had being VISA for my kids. Well, I use the same work envelope process to teach kids about taxes, paycheck deductions and wealth building.
Let's digress: In an earlier post I said that I let my kids earn extra money in this way . . .
I set up a system where I list things I need done around the house and how much it pays . . . the list looks like:
1. Break down all the boxes in the garage and set up for Recycling = $6
2. Clean all the bathrooms = $15
3. Clean out the pantry and organize food stuff = $7
4. Clean out the refrigerator and make list of needed groceries = $15
5. Weed the entire backyard = $20
6. Go through all closets and clean out/put giveaways in boxes = $25
The list changes bi-monthly. The rule is that you can't just take up a job. You must first be "hired" for the job. Which involves a quick written agreement of exactly what I want done, the agreed amount if successfully done, signature of both parent and child. Then when the task is finished there is a final signed EVALUATION from supervisor (parent). Good evaluations produces the money promised. So-so work and bad evaluations get a percentage of pay (usually 50%).
Payment is made at the end of the week (via an envelope of cash) with written information on it-- the TAXES and DEDUCTIONS taken out of paychecks.
Yes, you heard correctly, I take out taxes from each of my children's earnings. The taxes and deductions taken out are:
Resident tax - 2.5%
College Tax - 5%
Retirement Tax - 5%
Savings - 10%
Let's say that my kid worked hard and made $40 that week, their envelope would look like:
Total Income $40.00
Resident Tax $-1.00
Total Deductions $-9.00
Net Income: $31.00
Again, you will hear the gaps and the indignation of young voices. But this is the best time to explain to your children that all paychecks have deductions (you can show them an old pay check of yours to prove this true). Then you can explain to them where all these deductions are going and how they will benefit them.
Resident Tax - (For family outings/pizza night etc. This money goes in the house jar - where parents match all funds. This tax contributes to the benefit of your child's community, in this case the household is considered community.)
College Tax - (Money we add to their monthly 529 contribution - hey, children should contribute to their future too!)
Retirement Tax* - (We all know Social Security will not be around for our child's benefit, it is best to get them used to this idea of saving for retirement NOW.)
Savings* - (Wealth building is a required practice in my home because my children are not coming back home once they're all grown up. My husband and I emphasize this concept monthly).
*Savings and retirement money goes into a savings account with our child's name on it. Later, we will introduce investing these savings to make it grow faster. But that's for another day and another post.
Rosalind Mays successfully works-from-home as a virtual assistant, a freelance writer and a stressed-out mom. She's currently chronicling her trials and tribulations on her tongue-in-cheek blog, Telecommuting Millionaire.
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