Wants vs. needs: How to teach kids healthier money habits

Teaching kids the difference between a want and a need can be one of the most powerful money lessons you can teach them. On the surface, the concept might feel obvious to adults. But for kids, the line between “I need new sneakers” and “I want the latest limited-edition pair” can be blurry.

In this article, we explore the fine line between needs and wants, and how to make trade-off decisions, which is crucial for instilling money management and financial literacy. 

What are needs?

Needs are the essentials. When teaching your kids how to distinguish between a genuine need and a perceived one, highlight what’s a true necessity. Most adults consider these categories the bare necessities: 

• Shelter

• Clothing

• Food

• Water

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Jasmine Paul, founder of The Wealth Playground, suggests making this concrete by incorporating it into kids’ daily routines. "A good way to describe wants versus needs is to incorporate the daily routine," she explains. "Ask questions like what are some things that happen on the way to school or to the library. We wake up, brush our teeth, put on clothes, eat food, hop on public transportation, or go into the car and head out for the day. I would then ask what we need to do. Brush our teeth (clean running water), clothes (clothing), eating (food), and transportation. These are all things we need." 

The more specific you get, the easier it is for kids to master the concept and apply it to real-life decisions. 

What are wants?

Wants are everything outside of the essentials. All of those fun things your kids may circle in a magazine or put on an Amazon wish list for the holiday season. 

While it’s important to show that wants aren’t “bad,” kids also need to practice handling them responsibly. One simple way to do that is to let them take the lead in paying for their own wants. Paul explains, “A good way is to allow young people to buy and/or save up for what they want with their own money and use cash to do so. This impacts the child directly, and usually, when they see their cash decreasing, it enables them to rethink their choices.” 

Navigating the gray areas

No lesson on needs and wants with a child is going to fit neatly into one box, so it’s important to get specific for clarity’s sake when dealing with such an abstract conversation. 

Is ice cream a food? Yes, but ice cream is certainly not a necessity. Back to our new sneakers example,” A reliable pair of sneakers might be a need, while $300 designer shoes are a want.

Still, parents need to let their kids know that it’s okay to want certain things. But making smart choices around those wants will set them up for success. It’s much easier for kids to make those good choices when they grasp the true meaning of a necessity vs. something they want, crave, or think they need.  

How parents can teach wants vs. needs at different ages

Kids often absorb lessons best when they’re hands-on. Erika Wasserman, Certified Financial Therapist, shared some age-appropriate activities you can try at home:

• Toddlers. Make it as visual as possible. "Print out a picture of the toy and as they save money for it, do small tasks around the house, you color in the toy till they have earned it," says Wasserman. "Having the visual will help them understand and see what they are saving for.  

• Elementary school kids. Review your monthly expenses together and empower them to identify wants and needs. "Give them two highlighters and ask them to highlight [the needs] in one color and [wants] in the other color," suggests Wasserman. "Start a conversation around those expenses."

• Older kids and teens. Give them a set amount each month for “food vs. fun” and let them manage it. “This will give them practice making financial decisions. Along the way, they’ll learn lessons about mistakes, values, and costs,” says Wasserman.

For a family activity, try creating a big savings goal chart everyone can see, so kids watch progress toward something the whole family wants.

4 strategies to practice at home

Sometimes, the best lessons usually come from everyday life. Here are a few ways to demonstrate the difference between wants and needs that you can start with kids at any age.

1. Bring them into family budget talks. Show them how you created a budget to ensure you can cover rent, groceries, and bills before allocating funds for extras. 

2. Let them save for their wants. If your child has an allowance or earns money, encourage them to set a goal for something they want. Here’s where delayed gratification really clicks. 

3. Create a savings tracker. Whether it’s a jar, a chart on the fridge, or a savings goal you set in an app, give kids a way to see their progress toward something they want. 

4. Make a wants vs. needs list together. Ask your child to write down what they think are needs and what are wants. Then go through the list together. It helps them practice critical thinking and opens the door for great conversations.

Small strategies add up. As your kids grasp the difference between wants and needs, they’re also developing lifelong money habits centered on saving and prioritizing.

Turning wants into savings goals

Wants and needs make a perfect opportunity to teach the importance of saving money to reach a goal. Want a new pair of jeans? Save for it. Have an extra $50 each month after bills? Add that money to your savings goal. 

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