1. Teaching Financial Literacy To Kids: Introduction
  2. Teaching Financial Literacy To Kids: What Is Money?
  3. Teaching Financial Literacy To Kids: Earning Money
  4. Teaching Financial Literacy To Kids: Goods And Services
  5. Teaching Financial Literacy To Kids: Needs And Wants
  6. Teaching Financial Literacy To Kids: Spending Choices
  7. Teaching Financial Literacy To Kids: Saving For Short-Term Goals
  8. Teaching Financial Literacy To Kids: Saving Accounts
  9. Teaching Financial Literacy To Kids: Conclusion
The relationship between needs and wants is an important concept for children to understand. Needs are things that we must have in order to survive - things we truly can’t be without. Wants, on the other hand, are things that we would like to have, but that are not necessary for survival. Some needs and wants don’t cost any money at all: we all need air but we don’t have to pay for it. Likewise, we all need exercise to be healthy and we can run around outside for free. Many needs and wants, however, cost money.
Needs = things that we need to survive
Wants = things that we would like to have
 

Needs include:

  • Clothing
  • Medical care
  • Nutritious food
  • Shelter
  • Transportation
  • Basic utilities (e.g., heat, water) 
Examples of wants include:
  • Cell phones
  • Electronics (e.g., iPad, iPod)
  • Jewelry
  • Magazines
  • Movies
  • Television
  • Toys
  • 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.


Teaching Financial Literacy To Kids: Spending Choices
Related Articles
  1. Financial Advisor

    How to Use an Allowance to Teach Your Kids About Money

    On the fence about whether or not you should give your kids an allowance? An allowance is the perfect way to introduce your kids to financial lessons.
  2. Managing Wealth

    Talking About Money When Times Are Tough

    It can be hard to talk about money with your children, especially when times are tough, here are some tips to make it easy.
  3. Personal Finance

    How Families Can Survive With Just One Income

    An increasing number of households are getting by on one income. Surviving on only one income has its challenges, but it can be done.
  4. Personal Finance

    Help Your Kids Understand Money

    These simple tips will help you raise financially savvy kids.
  5. Financial Advisor

    How Parent/Child Financial Advisor Teams Work Best

    Bringing your children into your practice can be a good idea, but take care to prevent possible friction between you, your kids and members of your firm.
  6. Investing

    Your Bad Financial Habits Can Hurt Your Kids

    Modeling sensible planning and budgeting practices in front of your kids helps set them up for a lifetime of financial good health
  7. Personal Finance

    The Dos and Don’ts of Giving Kids an Allowance

    An allowance can be a great way to teach kids how to be responsible with their money.
  8. Retirement

    Wants vs. Needs: What I Learned From My 7-Year-Old

    Once your retirement needs are covered, you should enjoy your wants.
Frequently Asked Questions
  1. What's the difference between IRS Forms 1040EZ and 1040A?

    Anyone can file Form 1040; however, you have to meet certain requirements to use 1040EZ or 1040A.
  2. Why would a company buyback its own shares?

    Learn about share buybacks and some of the many reasons a company may choose to repurchase its own stock, including ownership ...
  3. What is the difference between Magna Cum Laude and Summa Cum Laude?

    Learn what the terms "magna cum laude" and "summa cum laude" mean and how different universities determine which students ...
  4. What's the difference between microeconomics and macroeconomics?

    Microeconomics is generally the study of individuals and business decisions, and macroeconomics looks at higher up country ...
Trading Center