At GoHenry, we want to help parents increase their child's financial literacy, and helping your child know the difference between needs and wants is a crucial part of this. Here's how to do it without overwhelming them.
What are needs?
In a nutshell, needs are the things that are a necessity for you to survive. So food, water, and shelter (a home). Needs remain constant over time as you will always need food, water and shelter.
Types of needs
According to psychologist Abraham Maslow's hierarchy of needs, there are five human needs,
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Physiological needs are the most basic needs required for human survival, including air, water, food, sleep, and shelter.
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Safety needs include personal safety, financial stability, health, and protection from accidents or harm.
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Love and belongingness needs involve the desire for love, affection, friendship, and a sense of belonging in relationships and social groups.
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Self-esteem needs include both internal factors, such as self-confidence and external factors, such as social status and recognition from others.
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Self-actualisation needs involve realising one's full potential, achieving personal growth, and pursuing meaningful goals.
What are wants?
By comparison, wants are things you wish to have but can live without – so sweets, toys, new clothes or a mobile phone. Wants are desires that change over time, so when you are 10, you might want an iPhone 13, but when you are 15, this might change to trainers and a car when you turn 18.
Types of wants
Human wants are very diverse, but they tend to be:
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Material wants, such as possessions, include a desire for cars, gadgets, and other tangible items.
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Luxuries that go beyond basic necessities, such as designer clothing, high-end electronics, or extravagant vacations.
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Experiences, which include travelling to a particular destination, attending events, or engaging in recreational activities.
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Entertainment such as movies, concerts, sports events, and other leisure activities.
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People also want recognition for their accomplishments, whether in the workplace, in sports, or in personal pursuits. Some individuals want social status, prestige, and respect from their peers and society.
The Difference Between Needs and Wants
The difference between needs and wants is that you have to take care of your needs financially before your wants; otherwise, you won't survive. That notion may sound drastic to kids, so explain this simply and age-appropriately.
Louise Hill, CEO of GoHenry, agrees, "There are lots of simple ways to do this and it to life for children so that it's meaningful, without having to go into complicated details that worry them."
She advises: "A good way to do this is when you take kids to the shops. Use shopping for groceries as an opportunity to talk about wants and needs. So we need the bread and the chicken, but we don't need - we just want - the chocolate cake and ice cream, for example."
What we might think are ‘needs’ but are actually ‘wants’
The line between wants and needs can sometimes blur, especially for kids. This can be down to peer pressure, social media or plain habit.
For example, your tween needs expensive trainers because all his friends have them, and he’ll be left out if he doesn’t. Your child needs a certain kind of pencil case as all the kids in her class have one. Your teen needs a part-time job as he wants extra money to buy the things he wants.
Other times, your child may need a smartphone to call you in an emergency. However, if they say they need an iPhone or a Samsung, this need becomes a want as the need can be satisfied with a much cheaper phone.
Is saving classed as a need or a want?
Whether saving is considered a need or a want depends on individual circumstances. In general terms, saving money can be viewed as a financial need because it contributes to financial security and stability. It provides a safety net for unexpected expenses, emergencies, and future financial goals.
However, the distinction between needs and wants can vary from person to person and situation to situation. For someone struggling to meet basic needs like food, saving may take a backseat to immediate necessities.
How to explain needs vs wants to kids in simple terms
Needs vs wants is a complex concept to grasp. It doesn’t help that, as adults, we sometimes mix them up. This can be confusing for kids when they hear us saying, "We need a holiday/new car/clothes". For this reason, make needs vs wants a subject you regularly discuss with your kids.
Parenting expert Tanith Carey, author of What’s My Tween Thinking | Practical Child Psychology for Modern Parents, says: “Learning how to prioritise spending is an important life skill. A huge part of that is working out the difference between a ‘need’ and a ‘want’ – which is the basis of all kids’ future financial decisions. Explain that needs are everything you require to survive, like food and shelter. And wants are complementary add-ons which are nice to have, but you can live without them.”
Explaining needs vs wants to younger children
Of course, it's not always easy for kids of all ages to understand needs vs wants, no matter how much you talk about it. This is why, as a parent, it pays to talk about money and say no now and again, as long as you explain your reasons.
For example, your child pesters you for something small that's affordable, but if you want them to understand that they can't always have everything they want, you say no.
The best way to explain this is to tell them they have everything they need, but if they want this item so badly, they need to save and work for it using their allowance and money they’ve earned from chores.
This is a good opportunity to discuss the benefits of an allowance, saving part of it, spending some of it, and budgeting if what they want costs a lot. This way kids can learn how they can have what they want if they are willing to work for it.
Related: Teaching delayed gratification to kids
Another tip is, with younger children, make it a game. If you have a pet, you could say:
So what does X need, is it - food or cuddles?
And what does X want, is it - water or playtime?
Explaining needs vs wants to older children
Older kids and teens also mix up needs and wants, primarily because peer pressure convinces them that they need a new phone or the latest trainers to feel accepted and valued. To help them learn the difference, encourage them to use their money and earning power to buy what they want.
Using pocket money and chores is the ideal way to do this. Pay them a weekly amount of cash onto a GoHenry prepaid debit card, and suggest ways to earn more via tasks. Also, talk about budgeting and allow them to save and spend, so they can buy the things they want as well as the things they need.
This means they’ll soon face the consequences of giving in to impulse buys or spending all their money too quickly. It’s a great practical lesson which teaches the difference between wants and needs, as well as the value of money.
Related: Budgeting for kids
How can you help your child adjust their spending on wants?
Teaching children about responsible spending and helping them adjust their approach to wants is an important aspect of financial education. Here’s how to help your child adjust their spending on wants:
Set a Good Example: Children learn by observing their parents.
Demonstrating responsible spending habits, distinguishing between needs and wants, and showing them a disciplined approach to managing money.
Teach them how to budget: Introduce the concept of budgeting and help your child understand the difference between fixed expenses (needs) and spending (wants). Encourage them to allocate a portion of their money for both.
Finally, discuss priorities. Talk to kids about their wants and help them prioritise. Discuss which wants are more important to them and why. This can help them think critically about spending choices.
Activities to help teach your child about needs vs wants
Sorting game
Create a pile of pictures or cards representing various items (e.g., food, clothing, toys, electronics). Work together to sort them into ‘Needs’ and ‘Wants.’ Discuss each item and why it falls into its respective category.
Grocery shopping
Take your child with you to the grocery store and involve them in the shopping process. Discuss the difference between essential items like fruits, vegetables, and dairy (needs) and non-essential items like snacks and treats (wants).
Budgeting game:
Give your child a set amount of play money and help them create a budget. Discuss different categories such as food, clothing, and entertainment. Have them allocate their money accordingly, emphasising the importance of prioritising needs over wants.
Role-playing:
Engage in role-playing scenarios where your child plays the role of a responsible decision-maker. Present different situations and ask them to determine whether the item in question is a need or a want. Discuss their reasoning.
How GoHenry can help your kids learn more about money
GoHenry’s prepaid kids debit card can help your kids learn the difference between needs and wants and become more financially savvy.
Studies show that giving regular pocket money is a great way to teach financial literacy.
Start by giving your child a set sum each week and asking them to use this to buy what they need and want.
With older kids, introduce budgeting (can they make their pocket money last all week without asking for a top-up?) and saving (are they able to delay gratification for a few weeks to buy those much-wanted trainers?) Activities like these will help them to build smarter money habits.
At the same time, the GoHenry app will also give you smart parental controls that help you set daily spending limits so your kids can enjoy some independence while you keep an eye on what they spend and receive a notification whenever they use their card.
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