So the big question is how to start off a conversation about depreciating assets with your kids?
Probably this article might be helpful
Parents, who always wonder if their child can understand anything about assets, investment, returns, etc. They will always be in a dilemma about when to start a conversation about this with their kids. I would like to say that there is no particular time to start a conversation about this topic, it depends on the interest levels of your child in particular. I always wanted to be an entrepreneur but my dad used to oppose saying I must concentrate on studies first.
Having a questioning mind, I never stopped asking him about anything and everything I wanted to know. That may be related to contracts, real estates, pharmaceuticals, etc. though my dad used to explain me in detail, there were few instances where he says you are not old enough to know about them.
I remember one such instance wherein we were discussing something related to land & buildings and there came the topic of depreciation. I was just 10 years old, hardly knew anything but was interested in all these matters as I have already mentioned above that I wanted to be an entrepreneur. He explained me a bit and he told me that you will understand it better when you are grown up.
Being a commerce student we deal with all these topics like depreciation, assets, investments, etc. I say they are no less to your kid’s reach, if well explained. So I thought of being specific on how to talk about this topic with your kids.
To start off with the topic they must understand few terms:
- Depreciable asset
An asset is something that is valuable to a person/ an entity owns. There are two types of assets
- Fixed assets
- Current assets
Fixed assets are those which are meant to be there in the business or held by the person also known as the holder of the asset for a longer period of time i.e. more than a year as they can’t be converted into cash in a short period of time. Ex: land& buildings, plant& machinery, etc.
Current assets are those which are held for a short period i.e. less than a year. These are also known as liquid assets as they can be converted into cash easily. Ex: investments, cash, inventory (stock), etc.
Fixed assets can then be divided into:
- Tangible assets
- Intangible assets
Tangible assets are those which can be seen and touched. Like a computer, bikes, etc.
Intangible assets are those which can’t be seen or touched. Like goodwill, patent, etc.
Depreciation is nothing but decrease in the value of an asset over its useful life. An asset can be said to be depreciated with use, obsolescence or wear and tear.It is nothing but converting the asset value into an expense. It is a non-monetary amount.
These are assets that are depreciated. Ex: car, computer, etc.There are many ways used for depreciating an asset. Of which the popularly used methods are:
- Straight line method (SLM)
- Reducing balance method
In what way is this useful to your kids?
It’s quite natural that kids these days are very much into gadgets. Their desire to purchase the latest trends will never call to an end. Parents must put a step forward in explaining the concept of depreciation which helps them to choose what to invest and is it appropriate? How much longer is this going to stay? Is it worth purchasing?
When your kids start asking these questions tell it to yourself that you don’t have to worry about your child investing in wrong things which are expensive and temporary at the same time. There will not be any situation when you will have to say NO! Anymore to what they ask once they start understanding these things.
This is to all the parents out there to explain your kids about depreciation so that they will not misunderstand you for saying no to any of their unimportant purchase.