Introduction to Depreciation for Kids and Teens
This video explains the concept of depreciation in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about depreciation, 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 depreciation
- An example of depreciation
- What causes depreciation – do all assets depreciate in value
- How does depreciation affect you
- How do you calculate depreciation
What is depreciation?
Depreciation is the decrease in the value of assets over time.
Usually when something is new, it is worth more, but as it gets older, it might reduce in value due to wear and tear or by becoming obsolete.
Businesses depreciate assets such as machinery, office equipment, vehicles etc. for accounting and tax purposes.
But depreciation is also important for individuals to consider when calculating their net worth.
Can you give me an example of depreciation?
Sure. Let’s say you bought a new car in 2015 for $20,000. In 2017, if you were to sell the car, you might only get $15,000. And now, in 2022, you might get less than $10,000.
This reduction in the market value of the car is called depreciation.
What causes depreciation? Do all assets depreciate in value?
Assets like furniture or cars depreciate due to wear and tear caused by use, while computers or other electronics like smart phones depreciate when the technology becomes obsolete – even if the physical asset is in good condition.
How does depreciation affect me?
Depreciation is very important when calculating your net worth so you don’t overestimate the value of your assets. Many of your assets will decrease in value over time.
For instance, a car from 5 years ago isn’t nearly as valuable now as it was when you bought it. By recording depreciation every year, you are essentially valuing the car at its current market value rather than the original value.
And if you don’t factor in depreciation, you won’t get a true picture of your net worth.
How do I calculate depreciation?
Unlike businesses, individuals like you and me don’t have to worry about accounting or tax implications of depreciation.
So there are no specific rules around calculating depreciation. Just use your best judgement of the asset’s current market value.