Teach Your Kids: The Difference Between Assets and Liabilities

Money lessons don’t start in business school—they start at home. One of the most powerful financial truths you can pass on to your kids is the difference between assets and liabilities. Get this right early, and you’ll give them a head start on building generational wealth instead of generational debt.

What’s an Asset?

An asset is something that puts money into your pocket. It’s not just about ownership—it’s about value creation. Assets either grow in value or generate income over time.

Examples of assets:

A rental property that pays you rent every month
Stocks and bonds that provide dividends or interest
A small business that makes profit
Intellectual property like books, music royalties, or patents

Assets don’t just sit there—they work for you, creating income and value even while you sleep.

What’s a Liability?

A liability is something that takes money out of your pocket. It may feel like ownership, but in reality, it drains your resources month after month.

Examples of liabilities:

A new car (depreciates immediately, plus maintenance and insurance)
Credit card debt with high interest payments
A big mortgage on a house you can barely afford
Luxury goods like boats, watches, or electronics that don’t generate income

Liabilities are like leaks in your financial bucket—they pull cash away from your future wealth.

The Rich vs. Poor Lesson

The poor often spend on liabilities: cars, gadgets, clothes.
The middle class often confuses liabilities with assets: they call a house an asset, but the mortgage, taxes, and upkeep drain them.
The wealthy focus on acquiring assets first: they let those assets create cashflow, and only then do they buy luxuries.

This mindset shift—understanding what feeds your wallet versus what bleeds it—is the dividing line between financial struggle and financial freedom.

How to Teach Kids Early

Kids are smarter about money than most adults realize. Here’s how to break it down in simple, relatable ways:

Keep it simple: Ask, “Does it put money in your pocket, or take money out?”
Use kid-friendly examples: A lemonade stand is an asset (it earns money). A video game is a liability (fun but no return).
Make it visual: Create two jars labeled Assets and Liabilities. Let kids drop cards with “rent,” “toys,” “business,” or “savings” into the right jar.
Reward asset thinking: Match their savings for investments instead of buying them another liability.
Talk about delayed gratification: Show them that building assets first creates freedom to buy fun things later.

Why This Matters for Families

Teaching this lesson early helps kids avoid the traps many adults fall into:

Living paycheck to paycheck
Taking on debt for “wants” instead of “needs”
Confusing “looking rich” with “being wealthy”

If your kids understand that assets feed you and liabilities bleed you, they’ll approach money decisions with a foundation that supports lifelong success.

Final Word

If you want to break cycles of financial struggle, this lesson is non-negotiable. Don’t just tell your kids to work hard—teach them to make money work for them.

Generational wealth doesn’t start with millions—it starts with a mindset. And the clearest mindset shift is this: Build assets, avoid liabilities, and your money will multiply for you.

Adapted from Jean Pijeau’s upcoming book on faith, finance, and generational wealth.