I remember when I was a little kid, my Mom served me some canned peaches. I was taken by the yellow color of the peach slices. I told my Mom that, from now on, I would call canned peach slices “goldfish.” My Mom gave me a handy piece of advice. “Abbie, if you call canned peaches ‘goldfish,’ no one will know what you’re talking about.”
No one will know what you’re talking about, or they will know that you don’t know what you’re talking about.
I only bring this up because there seems to be some confusion on the interwebs about what an asset is or isn’t. I can see how that would be, because the term “asset” is defined slightly differently if you use it colloquially instead of technically. While there may be a tiny amount of play between the meanings, there are also many people who just use the term “asset” wrongly. So, what does the term asset mean?
First, let’s make sure we have the context clear. When someone uses the term colloquially, they are referring to a useful or valuable thing. Examples of this would be someone saying “Her quick wit is a real asset on the stage.” Another example would be “His extensive education would be an asset in his career.” The speakers aren’t saying that a quick wit or extensive education are financial assets. They’re saying that these traits are beneficial to the people who have these traits.
However, when we use the word “asset” in the context of finances, we are speaking about a very specific thing. The definition of asset is “Property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies,” or, to put it more simply, assets are things you own.
So, now that we know what an asset is, let’s take a look at some of the questions that float around the blogosphere with an eye to what is or isn’t an asset.
First, we look at the post Is My Home An “Asset” Or a “Liability”? by “The Money Coach.” After asking a number of irrelevant questions, the conclusion is that a home is an asset. How about we cut out a lot of junk and ask the important question: “Is a house something you own?” Boom, it’s an asset.
How about the same question asked in the post Is Your Home an Asset or Liability? by Flexo at consumerismcommentary.com. After using the term “asset” in its technical sense, the post gets tripped up at the end by using the colloquial definition for “liability.” The conclusion that a house could be thought of as a liability is plainly wrong. You own a house, therefore it’s an asset. The mortgage on that house is a liability. The cost of keeping the house up are expenses. If you rent it out, the rent received is income.
So, next time you hear someone going on about the nuances of what is or isn’t an asset, and confusing the definition of asset with whether a purchase is or isn’t a wise investment, know that person doesn’t know what they’re talking about. Because, if they did know what they were talking about, they would know in an instant whether or not something is or isn’t an asset.