Teaching Financial Literacy To Kids: Needs And Wants
|Needs = things that we need to survive|
|Wants = things that we would like to have|
- Medical care
- Nutritious food
- Basic utilities (e.g., heat, water)
- Cell phones
- Electronics (e.g., iPad, iPod)
- Video games
Most people have jobs to earn money so they can pay for the things they need and some of the things they want. Unless you have an unlimited amount of money (very few people do), you have to understand the difference between needs and wants so you can spend your money wisely. Start a conversation by asking your child what would happen if your family spent your entire paycheck on toys one week, with nothing left for food or to pay your other bills. Explain that even though everyone really wants the toys, you have to pay for needs - things like food, shelter and heat - before you can buy items that are wants.
Needs and wants can get a bit tricky. Your family uses a car in order to drive the kids to school, get to work, go to the grocery store, etc. In most cases, people need a car. But, in many cases, people like to have a car that is bigger or more expensive than what they really need. So even though a car is a need, the car that many people choose is actually a want. The extra money spent on the larger or more luxurious car is money that could have been saved or spent on something else.
Food is another example. We all need nutritious food in order to grow and be healthy. For example, we need to eat protein, fruits and vegetables to get the energy, vitamins and minerals that we need to survive. We also need to drink lots of liquids to stay alive. But do we need ice cream? Do we need sodas? Even though we need food and water to survive, we do not need ice cream or Cokes or Mountain Dews, so these things are wants.
Needs and wants also vary from person to person, or family to family, and this can get confusing for children. A family with two adults and one child can get by with a small car, for example. The neighbor’s family, however, might have two adults and six children. This family will need a larger, and possibly, more expensive, car just to fit everybody. Houses are the same: a family with more children will need a larger home.
You can help your child distinguish between needs and wants by discussing different items or looking through magazines and asking about whether things are needs or wants. Or when you are out shopping, ask your child to point out items that are needs or wants. To illustrate that there is a finite amount of money to spend each week or month, draw a circle and divide it into sections, showing expenses such as housing, food and clothing, and how much is left over for optional items (wants). Your child might have fun coloring it in. Your chart might look something like this:
At this stage, little kids do not need to know everything that goes into the family budget (the pie chart above is overly simplified). They just need to understand that there is a finite supply of money to pay for the goods and services that your family needs and wants.
A method of calculating how much life insurance is required by ...
A tax reduction strategy employed by families living in areas ...
This bond is intended to help low-income families pay for higher ...
The amount of money that a student's family is expected to contribute ...
A credit given to taxpayers for each dependent child that is ...
Family offices are private wealth management advisory firms that ...
... Read Answer >>
Learn about Elizabeth Warren's 50/30/20 budget rule, a simple and effective plan for personal money management and wealth ... Read Answer >>
There are numerous options available to invest savings for a child's education: State-sponsored "529" college savings plans: ... Read Answer >>
Learn the basic steps to creating a solid retirement plan that can support you and your family, and find out how to manage ... Read Answer >>
Explore the possibilities for establishing a traditional or Roth IRA for a minor child, and learn the necessary requirements, ... Read Answer >>