The Parent Tax

I’ve had the pleasure of meeting various business professionals since joining the workforce a few years ago. One of the benefits of my previous job was that I got to work with older professionals that I may not have had the chance to work with otherwise. I normally tried to gather as much information (both professionally and personally) as possible from them in order to make the best financial decisions possible down the road. This is one of those ideas that I thought were great.

The Parent Tax

I had never heard of The Parent Tax before but the idea was simple enough. Whenever a child makes any amount of money they have an additional tax to pay and, like the name would suggest, it is paid to the child’s parents. This was true for allowances, birthday and Christmas money, paychecks from a teenage job, pet sitting money, etc. In this case I believe he charged 10%, but you could charge whatever percentage you would like. When kids aren’t paying real taxes you could charge more but once they get a part time job I’d knock it down a little.

The children of course would want to know why they had to pay the tax and why they didn’t get all of their allowance or paycheck from their jobs. The answer was pretty simple. Much like the government charges you for its services through taxes, the parents need to charge their children for the services they provide. They provide a housing, food, clothing in addition to luxuries like cell phones, cable tv, computers and more. The children of course hated the idea and wanted to spend the money on what they wanted. They complained often but the parents continued to collect the tax. I know as a kid I would have hated it, but there is a lesson to be learned.

The kids eventually turned 18 and graduated from high school. In this case, they went of to college. When the parents went to drop off each child at college the handed them a check that ended up being a couple thousand dollars with the condition that they spend it on school related items. It would more than cover books for at least a couple semesters or other expenses that pop up along the way. The children were really happy but wanted to know what it was for. It was The Parent Tax. I asked what would have happened if they didn’t go to college and the consultant responded that he would have let them use it to move out and get a head start with security deposits, etc. Either way the parents found a way (inadvertently) to help their kids save for their future.

Whenever one of the kids paid The Parent tax the parents put the money in a separate account for the respective child. That money built up over time and ultimately was returned (with interest) at a time when their kids needed it most.

What do you think of The Parent Tax? I don’t know if I would institute it but I thought it was definitely worth getting out there.

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About Lance Cothern

Lance Cothern, a Certified Public Accountant (CPA) licensed in the Commonwealth of Virginia, is the founder of Money Manifesto. You can read more about him here or connect with him on Facebook, Twitter, Google+ or Pinterest.

Comments

  1. I probably wouldn’t do something like this because just like we build animosity towards the government for collecting our taxes, I think the children would likely resent you as well.

    I’ll be all for teaching them to save some money, but I don’t know if I’d do this far to teach them about taxes.

    I do like the concept though.

  2. I think it’s a pretty cool idea. As long as the parents were saving it for the kids and giving it back for college expenses.

    I might not call it a tax but maybe just a mandatory savings.

    • If the parents spent the money I wouldn’t be happy at all. I think you have to save it for the kids or not use it. I believe it is the obligation of the parent to provide for the children because it was their decision to bring them into the world.

  3. A very interesting journey through your thought process. I do have to wonder about a couple things, however. First you mention that the higher end initial cash outlay might be a stretch for both you and your parents were in a similar situation. I certainly hope they have more saved than you at this stage in life. But secondly, you mentioned they might need extra money heading into retirement. Was this in terms of locking up money in real estate or in terms of cash flow?

    • They do have more saved than me but they have a lot invested in other things right now. My dad also has a pension through the military so that alleviates it a bit. Locking up money was in regards to real estate. Ultimately I was the one that called it off though.

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