Learning to be smart with money starts with understanding the difference between needs and wants.
As much as we all might love to have an unlimited supply of money funnelling into our bank accounts, the truth is that money is a limited resource. Understanding what’s essential (needs) and what’s not (wants) helps kids learn to manage their money responsibly.
Here’s how you can explain the difference:
Needs are things that are essential for us to live, like food, a place to call home, clothing, and transportation. Utilities, to heat an apartment or house in the middle of winter, is another example of a need. So is gas so you can drive your car to school.
Wants are the things that help us enjoy our lives, but aren’t essential. A brand new phone, tickets to a Sabrina Carpenter concert, a snowboarding trip, or a Netflix subscription are all examples of “wants.”
But while some categories fall into the “needs” bucket, not every item within that category is essential. For example, we all need to eat to survive. But while groceries for the week are essential, dining out at a super expensive restaurant is a want (no matter how much you might think you “need” to try that dish everyone’s posting about on Instagram).
The same goes for clothing. A warm winter coat is a need for the cold, snowy months. A top-of-the-line jacket designed for Arctic conditions and worn by your favorite celebrity? Not so much.
An easy way to illustrate this for your kids is to play a game. Take a look at the family budget and pick a few things you spend money on every month (rent/mortgage, entertainment, cell phone plans, etc.). Write each one down on a small piece of paper and set up two jars, one for “needs” and one for “wants.” Have your kids look at each piece of paper and decide which jar it belongs in. After they’re done, have a conversation about each expense and where it really belongs.
It can be a good idea to explain that people might say they “need” something when it’s not actually a need. “I need a new car” might just mean someone has an old, reliable car, but wants something new. Being thoughtful about the language you use as a family can reinforce the difference between the two.
What age should I teach my kids about the difference between needs and wants?
You can start introducing this concept and teaching kids about money as young as three years old. Just be sure to keep it simple and start with the basics. As your kids grow older, you can give a more advanced explanation, use real-life examples, and encourage them to save for the things they want.
Getting what they “want”
There’s nothing wrong with wanting to go on an exciting trip, visit a cool new restaurant, or buy an expensive pair of shoes.
Help your kids understand that while they can’t have everything they want all at once, they can set savings goals and save for the things they’re most excited about.
When they get excited about a new item, encourage them to take some time to think about it. This will help them distinguish between impulse purchases and intentional ones. Sometimes, kids might think they want something, but realize it just looked cool on social media. If they got it, there’s a chance they wouldn’t actually use it. If, after a few days, they’re still thinking about it, it’s time to create a plan to make that dream a reality. 🚀
You can help them figure out the cost of what they want and break down how much they’d have to save per week or month to make it happen. An app like Stockpile is a great tool! Kids get their own savings, can work towards goals, and see their progress in real time. They’ll even be able to watch their money grow, with every dollar saved earning 2.00% APY.1 If you want, you can set up an automatic transfer to send them a weekly allowance. You’ll be able to choose which percentage goes to savings, investing, and spending. Consider sitting down with your kids to create a budget that includes needs and wants: you can use this to inform the percentages you choose for each category.
Then, all they have to do is get to work and follow their savings plan!
The power of saving for wants
When kids learn to delay gratification (aka wait for something they want), they build confidence in themselves and their ability to meet their goals.
The famous marshmallow experiment, and countless other studies done on this topic, have also shown that delaying gratification is associated with higher academic achievement and less impulse decision-making (like impulse spending).
Teach kids about needs vs wants with Stockpile
Hands-on learning makes it easy for kids to understand the difference between wants and needs. Try the Stockpile app today, and start teaching your kids all about money.
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