A basic building block of budgeting is understanding the difference between needs and wants. What to consider and ways to teach budgeting.
Though it seems simple, understanding needs and wants can be difficult for kids as they tend to believe they need just about everything. Help them grasp the important concept early to encourage healthy money habits.
Needs vs. Wants Explained
Simply put, a need is something that’s necessary for survival. A want is something that would be nice to have, but is something you can live without. Everyone needs food, water, and air. Keep in mind that needs vary from person to person. For example, a photographer would consider a camera a need while a lawyer wouldn’t.
Once children have a basic understanding of what needs and wants are, they may not always realize when they’re overdoing it. Eating out isn’t a need simply because food is a need and an expensive vehicle isn’t a need just because transportation is a need.
If parents are able to instill this lesson in their children, it can help immensely with budgeting as they transition into adulthood.
Books can be a great teaching tool for young children because they’re able to see situations through a character’s lens. Lisa Bullard’s Lily Learns about Wants and Needs covers the concepts of needs and wants well.
Lily, the main character, wants a new bike, raincoat, and ice cream. With her dad’s help, she’s able to understand she doesn’t need a new bike and though she needs a raincoat, she can purchase one on sale in order to have money left over to get ice cream. It’s a win-win.
Another opportunity to practice recognizing needs and wants is while shopping. Have your kids go through your shopping list and identify needs and wants, or have them do this as you put items into your cart.
Discuss how you prioritize needs over wants. If unexpected or additional items are added, discuss whether or not other items have to be put back on the shelf. Even though it may not be the case, talk about why one may need to do that. Resources, after all, are finite.
Practice Makes Perfect
When your children are able to manage money on their own, consider allowing them to make their own choices. Give them a dollar amount, and then instruct them to purchase things they need. When they’re ready, review and discuss their selections.
Allow them to make mistakes and live with the consequences, but share your thoughts on what they could’ve done differently. If they’re under budget, consider allowing them to keep extra funds. This can help you begin another lesson: saving and setting goals.
Visit aplusfcu.org/balance to gain access to free resources covering a wide variety of topics, including Youth and Young Adults.