How to engage your next gen around finances - Day 1

Written by: Josh Arrington

Welcome to an opportunity to bond with your children and to teach them some valuable lessons they may not learn in our traditional education system.  The goal is not to turn them into financial experts or to cover every detail of the various concepts covered.  The hope is to provide basic understanding, open dialogue on these topics within your family, and provide a unique bonding time for all participating.
We realize that our clients have kids of all ages.  From elementary age to college student, the concepts covered over the next few days will help them understand the news coming out every day, and more importantly, prepare them for being responsible adults.  Knowing the variety of ages at play, each day is developed to provide you the freedom to fit the concepts to the cognitive level of your children.  Be encouraged that going into too much detail may make basic finance intimidating and boring to them, but not pushing learning a bit may mean a missed opportunity or even the message that these are trivial matters.  So jump in fully for 10-15 minutes each day and enjoy knowing your children will learn some things many of their peers may not understand for years to come.

 

day 1 - the basics of finance

 

Goal: Introduce the most basic financial terms and provide understanding of what is needed for financial growth and success.

 

I. Assets – An asset is basically an item or property that has value. The value is not just personal, but such that the value can be seen and appreciated by others.   This means the item is transferable for money.

  • Provide some examples of assets you own that your child is familiar with. Homes, vehicles, cash, etc…
  • Have your child share two or three things they possess that they see as assets. You can even have them bring an item to where you are talking.  A young child might have a bicycle while an older teen might mention the car they drive.

 

II. Liabilities – A liability is something that is owed and the debt can be met by either money or services of value performed.

  • Provide some examples of liabilities you might have or be familiar with. Mortgage, car loan, etc…
  • If your kids are like mine, at some point they have wanted something now and offered to pay for it over time with allowance money or extra chores. Explain how this is an example of having a liability.

 

III.  Net Worth – Net worth is simply the difference in a person’s assets minus liabilities.  It shows the true measure of ownership worth a person has for the items they possess.

 

LEARNING EXCERCISE 1:

This is a great place to either calculate together on paper or make the lesson tangible using Monopoly money (or a similar substitute).  Also recommend using one of the items your child identified when discussing assets.

 

Work with each child to set a value for the asset they have chosen (or that you have provided).  Set a realistic value so they learn to realistically value money.

  • Scenario one:  Assuming you have no liabilities and this is your only asset. 
    Calculate the individual net worth.

  • Scenario two:  Assume that 20% of value is a liability.  For younger children,
    you will need to help with calculations.  Calculate net worth again.

  • Scenario three:  Assume that 110% of value is a liability.  Calculate net worth again.  Take the opportunity here to discuss the importance of having assets that do not lose value over time if purchasing by using a liability.

 

For older students:  Using the information provided, identify which items are

assets and which are liabilities, then calculate the net worth in this situation.

Item

Value

House

500,000

Swimming pool loan

42,000

Mortgage

283,000

Car 1

45,000

Car 2

60,000

Boat

80,000

Credit card debt

18,000

Savings

67,000

Car 1 note

51,000

Boat note

36,000

A: Total Assets: $752,000   Total Liabilities:  $430,000    Net Worth:  $322,000

 

Now let’s look at a couple of financial terms related to businesses instead of individuals:

  • Net Income or Net Loss – Often referred to simply as profit or loss, the same calculation determines if a company made money (profit/net income) or lost money (net loss).
  • Revenues are streams of income or money paid for goods or services provided by a company.
  • Expenses are costs a company pays associated with providing goods or services.
  • Net Income/Profit occurs when revenues are greater than expenses.
  • Net Loss occurs when expenses are greater than revenues.

 

LEARNING EXCERCISE 2:

You do not need to provide exact details, but this is a great opportunity to bond with children by explaining in very basic terms some revenues and expenses of the company you own or where you work (Monopoly money works great for following scenarios).

     

  • Scenario one:  Sally has a lemonade stand during the summer when it is hot outside.  Her expenses for the summer include lemons, sugar, cups, balloons, and flyers to market her Amazing Lemonade!!  For the entire summer, she spends $80.00 on these expenses and sells 500 cups of refreshing goodness for $.50 each.  What is her net income or loss? 
    A: $170.00 profit.

  • Scenario two:  Billy mows yards in the summer to make money.  For twelve weeks, he mows eight yards for $10.00 each.  This year, he bought his own lawnmower and weed-eater for $320.00 and his cost for gas, repairs and other supplies is $40.00 a week.  What is his net income or loss? 
    A: $160.00 profit.

 

Take time to compare the scenarios.  Billy had far more revenue than Sally, but ended up with a smaller profit this year.  However, next year if Billy can use the equipment he already purchased, his profit will go up without his revenue increasing.

 

Take time to answer questions or dive deeper and enjoy knowing these are terms you can and should repeatedly use with your children in the future!   Depending on age, you may want to discuss the impact of the COVID-19 crisis on these areas for society or your family.  If you choose to do so, the goal is to increase awareness AND also to alleviate any fears or stress they may be carrying in this time.   

“Start children off on the way they should go, and even when they are old they will not turn from it. “  - Proverbs 22:6

 

next up:

ENGAGE THE NEXT GEN AROUND FINANCES - DAY 2

THRIVING FAMILY PRINCIPLE: Evidence Not Opinion

 

Josh Arrington is the Senior Business Development Manager of Archetype Wealth Partners. He is energized when helping high-capacity individuals discover their creative purpose and grow to their maximum impact in that calling. Archetype exists to help families thrive across generations.

 

Disclaimer: Our intent in providing this material is purely for informational purposes, as of the date hereof, and may be subject to change without notice. This article does not intend to constitute accounting, legal, tax, or other professional advice. Visitors and readers should not act upon the content or information found here without first seeking appropriate advice from a trusted accountant, financial planner, lawyer or other professional.

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