Introduction to Net Worth for Kids and Teens
This video explains the concept of net worth in a simple, concise way for kids and beginners. It could be used by kids & teens to learn about net worth calculation, 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:
- Kindergarten
- Elementary School
- Middle School
- High School
The topics covered are:
- What is net worth
- How do I calculate my net worth
- An example
- Does net worth fluctuate
- Why is net worth important
- Does high income equate to high net worth
Old Version
- What is Net Worth
- What if the liabilities are more than assets
- Who should calculate net worth
- When should net worth be calculated
What is net worth?
Net worth is a way to assess your overall financial health at a given point in time.
It is how much you own, also known as your assets, minus how much you owe, also called your liabilities.
If your assets are more than your liabilities, you have a positive net worth. But if you have more debt than assets, then youโd have a negative net worth.
Generally, the higher your net worth, the better.
How do I calculate my net worth?
You first need to list all of your assets. This includes all bank accounts, investments, real estate, and personal property like cars or jewelry.
Then, you need to list all your debt. This includes any mortgage, car loan, credit card debt, student loan, etc.
After this, you subtract your total liabilities from your total assets to get your net worth.
Can you give me an example?
Letโs say you own a house worth $200,000, a car worth $20,000, $10,000 worth of investments, and $5,000 in other possessions. You also have a $150,000 mortgage, a $10,000 car loan, and $5,000 in credit card debt.
Your total assets are $235,000, and your total liabilities are $165,000, making your net worth $70,000.
Does net worth fluctuate?
Yes, changes in the value of your assets or liabilities can cause net worth to fluctuate.
For example, if the stock market goes up, the value of your investments will also increase, leading to a higher net worth. However, if you take out a new loan or your homeโs value goes down, your net worth will decrease.
Itโs not the daily fluctuations but the overall trend that matters. This is why itโs important to calculate your net worth at least once a year, so you can understand where you are headed by looking at patterns and make any necessary adjustments.
When you just start earning, your net worth is likely to be low or even negative due to student loans, mortgage, and fewer assets. But as you get older and pay off debt while building assets, your net worth should increase.
Why is net worth important?
Knowing your net worth is key to effective financial planning. Calculating it periodically gives you a clear picture of your current situation, which can help in setting financial goals.
And monitoring it over time helps in tracking progress toward goals, and knowing what to prioritize – such as paying off debt quickly, building an emergency fund, etc.
It can validate your money habits if you are headed in the right direction, or act as a wake-up call if you are completely off track. Net worth also helps with decisions on budgeting, investing, and retirement planning.
Will someone who earns a lot of money also have a high net worth?
A common misconception is that a high income automatically means a high net worth. However, if that person also spends a lot and gets into debt, their net worth might actually be quite low or even negative.
On the other hand, someone with modest income but good money habits can accumulate significant wealth and have a high net worth.
What is Net Worth: Old Version
Howdy Wall Street Willy!
In the newspaper, I read that someone has a really high net worth.
What is Net Worth anyway?
Well, net worth is your assets, or whatever you own – like a home or a car, minus your liabilities, which is debt or money that you owe someone else – like car loan, student loan, credit card debt and a mortgage which is a loan for a house.
So you just subtract your liabilities from your assets to get your net worth.
Okay. Is my piggy bank part of my net worth?
Yes, it is part of your net worth. Very small part of it, but it still is a part of your net worth.
Excellent question!
Is my home part of my net worth?
Yes, it is because it is an asset and something you own.
But a mortgage on your home would be considered as a liability because it’s something you owe a bank. So you have to subtract that from your assets.
Okay.
What’s my net worth if my liabilities are more than my assets?
Well, if that happens, then your net worth will be in negative. But if you pay back part of your loans, then it will start becoming positive.
So, let’s say that you have a house of $100,000 and a car of $10,000. But you have a mortgage or loan on your house for $150,000 and a car loan for $10,000.
Then, your $100,000 house plus your $10,000 car would equal $110,000, but your mortgage would be $150,000 plus $10,000 loan on your car which would be $160,000. So your net worth would be negative $50,000.
- Assets: $100,000 house + $10,000 car = $110,000
- Liabilities: $150,000 mortgage + $10,000 car loan = $160,000
- Net Worth = Assets – Liabilities: $110,000 – $160,000 = -$50,000
But if you paid back $100,000 on your mortgage, then your net worth would be $50,000.
- Assets: $100,000 house + $10,000 car = $110,000
- Liabilities: $50,000 mortgage + $10,000 car loan = $60,000
- Net Worth = Assets – Liabilities: $110,000 – $60,000 = +$50,000
That’s really good.
Who should calculate their net worth?
Probably only rich people, right?
No, not at all – it is definitely not only for the rich people. Everyone should calculate their net worth.
From the richest person in the world to people like you and me, everyone should calculate their net worth to track their financial progress each year.
Even if you think that your net worth is really less, you should still calculate it.
When do you calculate your net worth anyway?
You should calculate it at least once a year. That helps you track your financial progress over the years, so you know how much your net worth has grown or gotten smaller.
Thank you very much for all the information about what net worth is!
You’re welcome.
Remember, finance is your friend!
Did you like this article? You can find more articles on fundamental topics of personal finance in the ‘Basics’ category.
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Podcast: What is Net Worth?
Fun, informative and concise episodes by a 10-year old, breaking down complex financial concepts in a way that kids and beginners can understand. Episodes cover personal finance topics like saving, investing, banking, credit cards, insurance, real estate, mortgage, retirement planning, 401k, stocks, bonds, income tax, and more, and are in the form of a conversation between a cowboy (a finance novice) and his friend, a stock broker. Making finance your friend, only at Easy Peasy Finance.
A little bit about me: I have been fascinated with the world of personal finance since I was 6! I love to read personal finance books, and keep myself updated on the latest by reading various personal finance magazines. My friends often ask me questions about finance because they find it complex and intimidating. Thatโs what inspired me to start my YouTube channel called Easy Peasy Finance when I was 8, and this podcast 2 years later.
Everything you need to know about Net Worth and Net Worth Calculation: what is net worth, how to calculate your net worth, how to include home and mortgage in your net worth, what is the net worth if liabilities are more than assets, who should calculate their net worth, when should you calculate your net worth, and more.
Show notes and transcript at: http://easypeasyfinance.com/what-is-net-worth/
