These two types of income production are also commonly referred to as “Aggressive” (Type 1) and “Passive” (Type 2) streams of income.
While we all aspire to receive as much income as possible from Type 2 sources, most people start their financial journey with only Type 1 income at their disposal. I recommend teaching children this principle as soon as possible so they do not get afflicted with “magic money tree syndrome” where they believe money just magically appears upon command.
You can do this even when a child is 3 or 4 years old by instituting a “chore chart.” This is a chart where you can assign specific tasks to the child, and they can receive payment upon successful completion. Basic tasks can be assigned at this age including emptying little trash cans into the big trash can, feeding the cat or puppy, and cleaning their room. All of these tasks will, of course, require parental “assistance” at this age, but you are incentivizing appropriate behavior and teaching the Type 1 Income principle!
Conduct a weekly review of the chart with the child. Have them “self-grade” their performance with each chore. Make payments accordingly.
Consider having a picture of their next desired purchase posted next to the chore chart to help keep the child focused on “why” they are doing this.
I really like chore charts that also include “fines” for obstinate and ridiculous behavior (like throwing themselves onto the floor in a tantrum or open and outrageous disobedience).
You will see your children learn how great it is to work and be productive and that good financial things can happen as a result!
Dave Ramsey’s Financial Peace, Jr. is a terrific resource that includes a dry-erase chore cart and even includes envelopes for giving, saving, and spending! We’ve used this to help our children learn these principles. HERE IS AN AMAZON.COM LINK to that resource.