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  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 kids to understand. Needs are things we must have to survive – things we truly can’t be without. Wants, on the other hand, are things that we’d like to have, but that aren’t necessary for survival. Some needs and wants don’t cost any money at all – we all need air, for example, 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.

Learning the Difference

Needs include:

  • clothing (basic, like t-shirts and socks)
  • medical care
  • nutritious food
  • Shelter
  • transportation
  • basic utilities (e.g., heat, water) 
  • savings (for an emergency fund and retirement)

Wants include:

  • electronics (e.g., iPad, iPod)
  • jewelry
  • clothing (non-necessities – designer sneakers, for example)
  • magazines and comic books
  • movies
  • television
  • toys
  • video games 
  • candy

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 things that are wants. (For related reading, see The Complete Guide to Planning a Yearly Budget – Needs vs. Wants.)
 
Needs and wants can get a bit tricky. Your family uses a car to drive the kids to school, get to work, go to the grocery store and so on. In most cases, people need a car. But, in many cases, people like to have a car that is bigger or more expensive than they really need. So even though a car is a need, that swankier car 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. (For more, see How to Manage Lifestyle Inflation.)
 
Food is another example. We all need nutritious food to grow and be healthy. For example, we need to eat protein, fruits and vegetables to get the energy, vitamins and minerals 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 don’t 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 needs 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. 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 don’t 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 your family needs and wants – and you all have to make spending choices.


Teaching Financial Literacy to Kids: Spending Choices
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