In order to teach children the difference between wants and needs when it comes to money, parents must first be clear on whether or not they understand that difference themselves.
Needs are things that a person must have in order to live, such as food, water, and shelter.
Wants are items or experiences that are not essential for survival but make life more enjoyable, such as a new toy or going on vacation.
It is important for children to learn how to differentiate between their wants and needs at an early age so they can develop healthy money habits.
Teaching them how to save up for what they really want and budget their money for what they need, will ultimately help them become responsible adults with a good understanding of their own personal finance.
1. Explain the topic of needs and wants
Parents should make clear to their child/children that wants are items/experiences that are nice to have, but not necessary for survival.
All humans need food, water, and shelter in order to live; however, some might also want fast cars, holidays and the latest tech.
It is important for children to understand the difference between their needs and wants because this is a concept that they will frequently encounter throughout their lifetime; whether it is at the grocery store, with Christmas or birthday gifts, or when they are looking to buy something special.
2. Teach your kids that wants and needs are relative
Children need to understand that what might be a want for them, could maybe be a need for the next person.
A child who has many toys and games might want a new video game, but another child who perhaps doesn't have any toys or games at all may see this as a need rather than a want.
It is important for children to understand that wants and needs are relative to each individual person.
3. Practice differentiating between needs and wants
Parents should set up scenarios with their kids where they can practice distinguishing between needs and wants - they might bring up situations that took place in the past or ask what their child would do if faced with a specific situation.
For example, "Do you think it's okay to buy candy when you're on vacation even though you know you already have some at home?" Or, "If your friend needs new shoes but you have a pair of new shoes that are just their size, should you give them to your friend?"
Asking you child these types of questions will help them to start thinking about the difference between needs and wants.
4. Use charts as a visual tool
Parents can teach their child about wants vs. needs by creating a chart - they could write a list of wants and needs on a whiteboard or poster, and then ask their child/children to place pictures or words next to each item.
This type of visual tool will help explain to children that wants are items that they enjoy having but do not need, while needs are things that they require in order to survive.
5. Set a good example
As parents, being aware of their own behavior and taking note of how they discuss wants vs. needs with other people will help to teach children how they should act when it comes to money.
As the saying goes, "Do as I say, not as I do" does not work - children are always watching their parents and taking note of their actions; if you're saying one thing but doing another (for example, telling your child to save up for the toys they want but spending frivolously on items for yourself), children will have a hard time understanding the difference between needs and wants.
8. Allow your children to make some of their own decisions
Teach your child about wants vs. needs from experience rather than just telling them what they can or cannot have. If parents only ever tell their children what to do, they will never learn how to make their own choices regarding their own needs and wants.
Once children are old enough to understand the difference between wants and needs, give them a little money to spend at the grocery store so they learn how much things cost.
This way, they will start to understand the impact of their choices - for example, if they choose something that's not very healthy because it's cheap, they might realize that it's not worth the cost.
9. Encourage your child to save up for something
Parents can teach their children about saving money by providing an allowance - having an understanding that some things must be worked for will give children more motivation to work towards what they want.
Of course, it makes us all feel warm and fuzzy handing over gifts to our children but when that is all we do, there is a potential risk that they won't learn that there is a cost to everything in life.
One way to teach children about the value of money is by setting up a savings jar.
Every time parents give their children an allowance, they can put some of it into the jar.
After six months or so, show your child how much money has been saved and let them decide what to do with it - perhaps this will give them the idea to put their money towards something they want.
10. Be supportive of your child's choices, but offer alternative options
Parents can let children learn about wants vs. needs by offering an alternative - for example, if your child wants a new toy that costs £40, you might suggest buying it on sale or waiting until next holiday season before buying it, when the toy might be on sale or there may even be a special offer where you could get two toys for the price of one.
Parents play an important role in teaching their children about wants vs. needs - they can do this by offering advice and guidance based on experience rather than simply telling them what to do.
As parents, it's important to teach our children the difference between needs and wants when it comes to money.
By setting a good example, using charts and visuals, allowing children to make some of their own decisions, and encouraging them to save up for something they want, we can help our kids understand the value of money and therefore make stronger financial choices.