Module 8: Needs vs. Wants

FINANCIAL LITERACY LEARNING RESOURCES 

What you need to know about Needs & Wants

Objective:In this lesson, children will learn how to distinguish between needs and wants. Understanding the difference between essential spending (needs) and discretionary spending (wants) will help them make better financial decisions and prioritize their money more effectively.

1. What Are Needs and Wants?

To make good choices with money, it’s important to understand the difference between needs and wants.

A. Needs

Needs are things that are necessary for living safely, staying healthy, and functioning every day. These are the essentials that you can’t do without. If you don’t have them, it could negatively affect your well-being or make life difficult. Some common examples of needs for kids include:

• Food: You need food to stay healthy and energized.

• Clothing: You need clothes to stay warm and comfortable, especially in different weather.

• Shelter: You need a safe place to live, like your home, to protect you from the weather and keep you comfortable.

• School supplies: Items like pencils, notebooks, and backpacks are essential for learning at school.

B. Wants

Wants are things that you enjoy, but they aren’t essential for your everyday life. You can live without them, but they make life more fun or enjoyable. Some examples of wants include:

• Toys: You might want a new video game or action figure, but you don’t need it to live.

• Sweets or treats: Candy, ice cream, or special snacks are nice to have, but they aren’t necessary for your health.

• Entertainment: Going to the movies or buying an app can be fun, but you can also enjoy other activities that don’t cost money.

2. Why is it Important to Know the Difference Between Needs and Wants?

Understanding the difference between needs and wants helps you make smart financial decisions. Since money is limited, you need to make sure you’re spending it on the most important things first. Here’s why this is important:

A. Prioritizing Needs First

By focusing on needs before wants, you ensure that the essentials are taken care of. For example:

• If you spend all your money on toys (wants), you might not have enough left to buy school supplies (needs).

• Taking care of your needs first helps you stay prepared for school, stay healthy, and have everything you need to live comfortably.

B. Saving Money for Bigger Goals

When you understand the difference between needs and wants, you can make better decisions about how to save. By limiting how much you spend on wants, you can save more for important goals, like buying a bike, going on a trip, or saving for college. Prioritizing needs and saving money helps you reach bigger goals faster.

C. Building Good Habits

Learning how to separate needs from wants at a young age helps you build healthy money habits. These habits will help you as you grow older and start earning and managing more money.

3. How to Identify Needs vs. Wants

Sometimes it can be tricky to tell the difference between a need and a want, especially when something feels really important to you. Here’s a way to help you decide:

A. Ask Yourself These Questions

When deciding if something is a need or a want, ask yourself:

• Do I need this to live, stay healthy, or go to school?

• Can I live without this, or is it something that makes life more fun?

• What will happen if I don’t get this item?

If the answer is that you need it to live, stay healthy, or succeed at school, then it’s probably a need. If the answer is that it would be nice to have, but you don’t really need it to survive or stay comfortable, then it’s likely a want.

B. Make a List of Your Needs and Wants

It can also be helpful to write down the things you need and the things you want. Here’s an example:

Needs:

• Lunch for school

• New shoes for gym class

• Notebook for homework

Wants:

• New video game

• Candy from the store

• Fancy headphones

Once you’ve written down your list, you can see more clearly where your money should go first.

4. Balancing Needs and Wants

While it’s important to prioritize needs, it’s also okay to spend money on your wants sometimes. The key is to balance the two. Here are some tips for doing that:

A. Take Care of Needs First

Before spending money on anything fun, make sure your needs are covered. For example, if you’re given $20, you might need to use some of that for school supplies first. Once you’ve taken care of your needs, you can use what’s left for wants.

B. Save for Bigger Wants

If there’s something you really want, like a new video game or a special toy, it can be exciting to save for it. Instead of spending all your money right away on smaller wants, you can put some money aside each time you get paid. This way, you can buy something bigger and more meaningful when you have enough.

C. Limit Impulse Buying

Impulse buying means spending money on something you didn’t plan to buy. It’s usually something you want but don’t need. To avoid spending money impulsively, make a list of what you need before going shopping, and stick to that list. This helps you avoid buying things just because they look fun in the moment.

5. Real-Life Examples of Needs vs. Wants

Let’s look at some real-life examples to see how you can tell the difference between needs and wants:

Example 1: Going Shopping for Clothes

You’re going shopping, and you need to buy clothes. There are two items you’re looking at: a new pair of sneakers for gym class and a fashionable jacket.

• Need: The sneakers, because you’ll use them for gym class and they’re important for physical activity.

• Want: The jacket, because while it looks cool, you already have enough jackets at home to keep you warm.

Example 2: Saving for a Goal

You’ve decided to save your allowance to buy a new tablet. You get $15 for your allowance, but you’re tempted to spend $10 on a toy at the store.

• Need: Saving for the tablet, because it’s something you’ve planned and want for a bigger goal.

• Want: The toy, because while it’s fun, it wasn’t part of your original savings plan.

6. Why It’s Important to Think Before You Spend

Whenever you have money, it’s important to think carefully before spending it. By asking yourself whether something is a need or a want, you can make smarter decisions. Here’s why:

A. Helps You Stay Focused on Goals

When you think about your spending, you stay focused on your goals, like saving for something bigger. If you spend all your money on wants, you might not have enough left to reach your savings goal.

B. Avoids Regret

Spending all your money on things you want might feel exciting at first, but later you could regret not saving or taking care of your needs. Thinking carefully before spending helps you avoid that feeling.

7. Activity: Sorting Needs and Wants

Give kids a list of items, and ask them to sort them into two categories: needs and wants. Here’s a sample list:

• New backpack

• Ice cream cone

• Textbooks for school

• New headphones

• Lunch at school

• Tickets to a concert

Let the kids explain why they sorted the items the way they did. This helps reinforce the lesson of understanding what’s essential and what’s for fun.

8. How Knowing Needs and Wants Helps You Make a Budget

Understanding the difference between needs and wants helps you create a smart budget. When you know what’s essential, you can plan your spending better. In our previous lessons, we talked about the 50/30/20 rule. Now that you know how to separate needs from wants, you can apply that rule more effectively:

• 50% for needs: Make sure this part of your budget goes toward the essentials like food, school supplies, and clothing.

• 30% for wants: Use this part for fun things like toys, games, or treats.

• 20% for savings: Save this for future goals and emergencies.

Conclusion:By the end of this lesson, kids will have a clear understanding of the difference between needs and wants. They’ll learn how to prioritize their spending, make smarter financial decisions, and use this knowledge to create a balanced budget.