Explaining assets vs liabilities to kids

Published on 5th May, 2025 at 10:42 am

Most people start their adult life with low financial literacy, putting them on the back foot when it comes to managing their money. Set your child up for success by helping them learn the financial basics, like the difference between assets and liabilities.

Reading time: 4 minutes

In this article, you’ll learn:

• Why teaching financial literacy is so important.
• To understand the difference between assets and liabilities.
• How to explain this concept to your child.

Why teaching your child financial concepts is so important

“Financial literacy is one of the most practical and universally needed skills we can teach young people,” says Audrey Tan, a product and marketing associate for financial literacy programme MoneyTime. “Unfortunately, it’s not seen as a ‘core subject’ like math or science, so it often gets sidelined. Making financial education mandatory, relevant, and age-appropriate could dramatically shift how prepared young people are to manage money in the real world.”

Assets vs liabilities for adults

Financial terms aren’t the easiest to understand, so don’t stress if you’re not sure what the difference is yourself. Before you try and explain the concept to your child, however, make sure you’re clear:

Assets are things you own that have value and can make money – like a retirement annuity, an apartment you’ve paid off with a resale value, or a popcorn machine you rent out at events.

Liabilities are financial obligations or debts that you owe – like the car or credit card you still need to pay off.

Explaining assets and liabilities to a child

According to Tan, the key to explaining financial concepts to a child “is to keep explanations simple, tangible and rooted in their everyday experiences”. “I believe it’s appropriate to introduce the basic concept of assets and liabilities from around age 11,” Tan says. “At this age, children are at a stage when they begin to understand the value of money and are capable of grasping simple financial cause-and-effect relationships.”

When your child reaches preteen age, school items stuffed into their backpack make a great representation. All the books and stationery in that bag that belong to you are your assets: they help you learn, which will one day lead to a job and make you money.

That eraser you borrowed from your schoolmate, however, is a liability. Your schoolmate will probably ask for it back, and they won’t be happy when they realise you took it home. You might want to return it with a thank you gift to soften the blow. This scenario is also a good basis to explain interest to your child.

When your child is a teenager, you can start to bring in real financial and income-based concepts. “Build on this foundation by introducing the idea of productive assets like savings accounts, investments, or even a business, and recurring liabilities like subscriptions or loans,” Tan says.

Imagine you bought all the ingredients for brownies that you’re going to bake to sell during school lunch break. Those ingredients are assets that will make you money. They’re an investment into your future income, which is a great segue to explaining the difference between saving and investing.

But imagine the money you made from those brownies all goes to your parents to pay off the PlayStation loan you took out because you wanted that PlayStation now. That’s a debt you owe, and a liability. This is also a great opportunity to explain the concept of debt and credit to your child.