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Kids 101: Net vs. Gross Pay

Kids begin getting curious about family income as early as elementary school. If your child brings it up, it might be just the right time to explain gross and net income and discuss some of the other things that come out of a paycheck before it’s ready to deposit or spend.

Gross vs. Net

Explain that gross pay is the amount an employer has agreed to pay an employee for their work. Net pay is the actual amount of money an employee takes home, once his/her check has paid for required or voluntary deductions, like taxes, health insurance, Medicare and Social Security. For instance the gross pay might be $1,500 per week, but after the deductions are taken, it might only be $900 per week. Do a delicious demonstration by buying a mixed colored bag of candy (like M&M’s or skittles). Pour the candy into a bowl and tell your child to pretend this is a gross paycheck. Then tell the child they must take out all the yellow candies for taxes and Social Security, and the green candies for healthcare coverage. The rest is their net pay and theirs to eat. It is almost guaranteed they’ll like this and understand it!

This discussion could flow into a conversation about the kinds of salaries different career paths can lead to. Ask your young one to make a list of a few things they’d like to be when they grow up, and have them sit with you while you look up the average salaries of those careers. This is a fun way for them to explore the paths in life that excite them while also getting a taste of what it means to be paid for doing something they love to do.

Being very clear about what they can financially expect in the future can help them to make some very important decisions about their career paths.