How to Teach Kids the Difference Between Assets and Liabilities

Imparting financial skills to your young ones is necessary, as it gives them a leaning place once they are out of your full-time care. Financial literacy is wide, and for the best learning outcome you should start with the basics, as you go into more complex concepts. 

Talking about the basics, you can start by talking about assets and liabilities. Assets and liabilities are key determinants of an individual’s net worth, which helps an individual know their current financial standing.

You must keep several things in mind when teaching about these financial basics to your children to get it. For your benefit, we guide you on how to teach kids the difference between assets and liabilities as part of their money lessons.
Start with Simple Definitions

Like in most classes, you start with simple definitions of the terms before you go deeper into their functionality and significance. In this case, assets are the valuable items under one’s possession, which can appreciate or provide an income. They include cash as capital, land, business vehicles, and office utilities.

On the other hand, liabilities are the things that you should pay for, or owe, basically your bills and other financial obligations. After defining these two terms, you are now good to delve into how they work.

Make the Lessons Fun Where Necessary

Most kids have a short attention span, and they may easily lose their concentration, primarily when dealing with complex topics like finances. You can get a hold of their attention by making the lessons fun. How to make the lessons fun depends on the children’s age. 

For kids around the age of 5˗12, you can use games to secure their wandering minds. Use games like Monopoly, Escape from Barter Island, and Financial Football to make the teaching enjoyable.

Additionally, you can bring in children’s financial books, which they can read during their free time. Such books use simple language and illustrations for easier understanding. Examples include Make Your Kid a Money Genius (even if you’re not), Dollar & Sense: A Kid’s Guide to Using ˗Not Losing Money, and National Geographic Kids: Everything Money.

You may use YouTube videos, financial apps, and other online money tools for older and tech˗savvy kids.

Use Real-World Examples

Another way to ensure that your kids learn the difference between assets and liabilities is by using real-life examples. Bank on things that they can easily relate to for them to understand the difference between the two terms.
For instance, explain that a car used for business, such as deliveries, is an asset as it is generating income. The same applies to a toy collection that appreciates in demand, which you can sell in the future for a profit.
A good example of a liability is a car loan that one should pay monthly or a toy that can easily break and regularly needs fixing but doesn’t grow in value. 

Talk About the Concept of Income and Expenses

Teach About the Importance of Growing Assets

As previously mentioned, assets are essential for the stability of an individual’s net worth. It means that your child should learn how to grow their asset base, ensuring they have a regular income stream to support their lifestyle.

Explain Debts/Loans and Interest

You should talk to your kids about debts and interest. It is hard to avoid debts, and many people will in one part of their lives get into them due to various situations. Loans are helpful and are common liabilities; the debtor should know what they are getting into once they sign up for one.
Loans accrue interest, and without a sense of financial responsibility and discipline, the debt may get out of hand, leading to embarrassing situations. 

Leveraging Assets and Liabilities

Your kids should learn how to maximize assets and liabilities for a stable financial standing, especially if they are in business. Liabilities, such as loans, are not entirely bad, as they may be the asset base a business is running on as capital. 
A key lesson in leveraging assets and liabilities is to ensure that assets are always more than liabilities in value. A vice-versa situation means the business is highly likely to run on losses. 

Final Remark

Liabilities and assets help determine a person’s financial position. This discussion looks at how to teach kids the difference between the two and shows you how to go about it.

Always start simple with such financial lessons and incorporate games and real-life examples to make the home financial classes fun and more understandable.