How To Help Kids Separate Needs From Wants?
Understanding the difference between “Needs” and “Wants” is important in personal finance.
Often times you feel you “need” something because you “want” it really bad. But they’re not the same thing. Distinguishing between what you really need to have and those that you just want is important. It will help you to prioritize your spending.
Needs: a basic amount and quality of food, some place to live, clothes, a toothbrush, an inexpensive car to get to and from work, heat and electricity for your home, for example.
Wants: a giant TV, a video game, the newest iPhone, the hottest new style of pants, to eat out at your favorite restaurant, a big house, the trip to Hawaii, etc.
As adults we use this to help us budget. After you have the needs covered you identify all the things you want to have. Then you determine what you can afford. Maybe that’s nicer food, shelter, and clothing or a splurge item if it fits within your budget.
This very same concept applies to kids too. Let’s face it, their basic needs are paid for by parents. So, at younger ages, their own money generally goes to things that are not in the need category. However, they can begin to realize that the things they think they can’t live without are really just wants. They can see how their own wants will change. What they think they need so bad today, they may not want in a week or month.
Here’s an exercise that can help them understand the concept. Have them make a list of all the things they want and how much each costs. Ask them to rank the items in order of what they want the most.
Here’s the hard part (at least with my kids), get them to agree to wait for a month to purchase any of it. I know. My kids get something in their heads that they want and it can be very hard to talk them out of it. Maybe giving them a little incentive can help the first time you do this exercise.
The goal here is to have them write a new list in one month’s time and compare. See how much it changed. In my experience it’s usually a totally different list a month later.
We want them to get in the habit of thinking this way. Before they buy something we want them to consider whether they will still want that thing in a month. Is it really that important to them? Or will they wish they still had the money.
In my experience, the first couple times is the hardest. Once the kids begin to see that, “yeah, I did regret that purchase later” or a month later think “Wow, I’m glad I didn’t buy that thing” they become much more thoughtful about their spending.
Please comment with a story about your kids making good spending decisions. I’d love to hear it.