Teaching children about money is so important these days if you want to increase their chance of creating wealth in their adult lives and one of the most important concepts is assets and liabilities. A kids allowance is usually used for snacks and toys. As they enter into their teenage years, their wants change and these may include cars, holidays and clothes. Parents need to educate their children what the difference between assets and liabilities is. This is what is going to set apart your child from becoming wealthy or just joining the rat race and just surviving to pay the bills.
Definition of an asset:
An asset is a resource that has value. For example, if you were to consider buying a house, this would be an asset as the value grows consistently. It puts money back in your pocket later on making you money.
Definition of a liability:
A liability is a debt that is costing you money. For example if you were to purchase a car on a car loan from the bank, this would be a liability. As the car grows older, it is losing its’ value while at the same time you are still paying it off with high interest. Liabilities at the end of the day take money out of your pocket, it’s never coming back.
When our children our young, we want to teach kids about money so they will have more educated choices in buying either an asset or a liability. Teaching kids about money is teaching them to buy assets to build their wealth rather than liabilities which will ultimately make them poorer.
Teach your kids to be asset rich, not liability rich. Be very careful of this. This is what can separate your child from becoming wealthy and poor later on in their lives.
There is a large portion of people in the workforce who earn a reasonably good salary. But have no assets to show for it. It is not enough to get a good education, and then get a good job which pays you a great salary. You need the knowledge to know how to invest and differentiate between assets and liabilities.
Teaching kids about money is a responsibility for all parents to take seriously of, so the younger you teach kids money, the earlier they will start to form a brighter financial mindset.
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