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FOR IMMEDIATE RELEASE
April 2, 2002
Contact Rebecca Reid at 202-342-2922

How to Use Your Tax Refund to Teach Your Child About Personal Finance


WASHINGTON, D.C. (April 2, 2002) -- Your taxes are done and you’re getting a refund. Whether it’s $300.00 or $3000.00, the temptation to spend the refund on a new wardrobe, upgraded appliance or deck furniture is looming. But recognize you have a golden opportunity to teach your children about money management and sensible personal finance decisions.

“If you have debt, you can afford to use the refund to pay down what you owe to creditors instead of buying something new,” says Mike Canning, president of Americans for Consumer Education and Competition (ACEC). “This is one way of saving your family thousands of dollars in interest over the next few years.”

Canning says now is the perfect time to teach pre-teens and teens the importance of saving and investing for the future.

“The government has had your money interest free for a year, but when you get it back, that’s no reason to squander it,” he says. “Help the money grow and increase your child’s appreciation of saving even the smallest amount.”

Take your child to the bank and deposit the refund in an interest-bearing savings account. Explain interest rates to them, track the month-to-month progress of the deposit. The money earned from the interest will easily demonstrate how even a small amount of money can grow;

  • Give a small percentage of the refund to your child as an exercise; open a savings account or buy a bond with the money and track it’s progress;
  • Pay down your debt. Use the refund to demonstrate how eliminating the principal on credit card debt, or a bank loan, can save you thousands in the future. Tell your creditor you want the payment to be applied to the principal directly, not the interest, then use the opportunity to teach your child about the cost of borrowing money and how best to manage it;
  • Invest in your Roth IRA or traditional IRA; now is a good time to teach your child about retirement. It may seem far away for a teenager, but the more you talk about it today, the more likely they will be to start their own retirement account in their 20’s, and enjoy a more worry-free future;
  • Instruct the IRS to direct deposit your refund into your mutual fund account; you can do this on the tax form and it teaches your teen that if you don’t have it in hand, it won’t burn a hole in your pocket;
  • Open an IRA education fund for your child; this is something you can track over several years with your son or daughter; giving them the overview of your sensible investment will also help them appreciate their college education all the more when they understand the process;
  • Use the money as seed for a reserve; with sudden layoffs or household emergencies, most experts recommend a three-to-six month reserve that will cover your necessary expenses. Teaching your child to anticipate financial pitfalls may help to prevent them in the future;
  • If you don’t need it, donate the refund or a portion of it to charity. The act will teach your child to think less selfishly and in some cases, a portion of the donation can be used as a tax deduction the following year.

“Integrating your pre-teen and teen into the tax refund process gives them real-life examples of how to wisely manage money,” says Mr. Canning. “It is an opportunity ripe for parent-child interaction and another chance to share important lessons that will last a lifetime.”