How to explain net worth to your kids

A need-to-know definition the little ones can understand

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From the September/October 2016 issue of the magazine.

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Your net worth is the sum of all your assets and liabilities. It’s a basic calculation that will help determine your financial worthiness with banks and creditors. If you want to buy a house, rent a car or just get an apartment, it’s an important figure to know.

1. “You save $200 a week, right? That’s an asset. Call it $10,400 annually.”

2. “How much is your bike worth? $1,500?! Okay, also an asset.”

3. “But your student loan is a liability. It’s $5,730 a year.”

4. “So your assets add up to $11,900. But you have a liability of $5,730. Subtract your liabilities from your assets and your net worth is $6,170.”

5. “But you’re priceless to me.”

More tips on how to raise money-wise kids:

Ages 0 to 6: My first money moves »

Ages 7 to 12: Saving not spending »

Ages 13 to 17: Big kids, bigger budget »

Ages 18+: Preparing to launch »

How to explain…

Basic budgeting to kids »
Compound interest to kids 
»

Ways your kids can earn and save

Run a successful lemonade stand »
Save money at school  »

More tips:

How can I avoid money tantrums? »
Should you pay your kids to volunteer? »
Should I buy my 10-year-old a smartphone? »
Does my kid need a clothing allowance? »
Should I give my teen a credit card? »
My kid called from college and is broke again »

2 comments on “How to explain net worth to your kids

  1. I know conventional wisdom suggest that items such as: personal residence (if owned or mortgaged), cars, jewellery etc are classified as assets, however; I personally subscribe to the advise given by Robert Kiyosaki of Rich Dad that only financial assets that put money in your pocket are assets, otherwise they are liabilities. Ask a bank if your mortgage is itemized under their asset or liability column – it is their asset and your liability. Indeed this is true, even after ones own property is fully paid off, as it still cost money every month to operate e.g. taxes, utilities, condo fees etc. I try and teach my children this very important lesson whenever I am considering purchasing an investment (property) or liability (car). Passive income, whether through real estate, dividend payments, royalties etc. are essential to creating the safety net one needs for retirement.

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  2. Such important financial fundamentals that all parents should teach their children.

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