At GoHenry, we want to help parents increase their child's financial literacy, and helping your child to 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.
What are wants?
By comparison, wants are desires, 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.
What’s 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 in a simple and age-appropriate way.
"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. 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."
Louise Hill, Co-founder and COO at GoHenry
How to explain which things are wants and needs
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.
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?
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.
Explaining needs and wants simply to kids
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 pocket money and chores.
This is a good opportunity to discuss the benefits of pocket money, 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.
How GoHenry can help your kids learn more about money
GoHenry’s prepaid 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.