Active vs Passive Income Comparison for Kids and Teens
This video performs an active vs passive income comparison in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about active income and passive income, or used as a money & personal finance resource by parents and teachers as part of a Financial Literacy course or K-12 curriculum.
Suitable for students from grade levels:
- Elementary School
- Middle School
- High School
The topics covered are:
- What is active income
- What is passive income
- What are the differences between active and passive income
- Active vs passive income: which is better
What is active income?
Active income is income that you actively have to work for.
Some examples of active income are salary, tips, or income from your business.
Most people earn their living through active income.
What is passive income?
Passive income is income that you don’t have to actively work for. Passive income can be considered automatic, meaning that you’ll earn passive income with little to no day-to-day effort.
With passive income, the work is mainly in initially setting up a passive income stream.
Some examples of passive income are investment income, pension or social security income, rent, and royalties.
What are the differences between active income and passive income?
The fundamental difference between active and passive income is the time and effort needed to generate the income.
With active income, you have to put in a lot of time and effort consistently to earn money. If you stop working, you stop earning money.
But with passive income, you do most or all of the work upfront. There is very little time and effort spent when you actually earn money.
Another difference is active income is immediate and regular – you get paid daily, weekly or monthly for the work done, whereas passive income can take years to set up – and even then, the earnings may not be consistent.
Also, unlike active income, passive income continues to generate money even when you are sleeping or on vacation.
Let me give you an example. If you work at a restaurant, you have to continue putting in time in order to get your salary and tips.
But in the case of royalties from a book, you put in almost all of the effort up front when you actually write and publish the book. After that, there isn’t much ongoing effort needed to earn royalties from your book.
Active vs passive income: Which one is better?
Clearly, passive income sounds like a dream life where you earn money with minimal day to day effort while doing all the things you truly love.
In fact, many people advertise passive income as a guaranteed way to get rich and make a lot of money quickly. But if that was the case, no one would ever take up a job or run a business!
Passive income can generate a good amount of money for you, but what people often don’t realize is that it takes a lot of time, effort, knowledge, and planning to get to a point where passive income alone is enough to sustain your lifestyle.
For anyone starting out, a combination of active and passive income is the best strategy, as you need to earn active income to be able to build a passive income stream while supporting yourself until you can fully live off of passive income.
Conclusion: Active vs Passive Income
What are your thought on active income and passive income? Which one wins in an active vs passive income comparison?
Please let us know your thoughts in the comments!