Welcome to ‘Money Explained’ - a series that explains the basics of money, for all the household. Our aim is to make money management easier by creating a better understanding of the basics. We believe that household conversations about money are essential, and the articles will cover topics important to kids as well as adults. Here, we take a look at that tricky but important issue, needs vs wants.

When it comes to spending money, everything can be split into ‘needs’ and ‘wants’. It can sometimes feel hard to distinguish between the two. Here are some ways with your children to think about the differences.

It’s important to buy things you need - the essentials you couldn’t live without - before the things you want - things you’d like to have, but could do without. Look at the following list in terms of needs and wants:

  • Water
  • Electricity
  • Game controller
  • New bike
  • Housing
  • Food
  • Chocolate
  • Clothes
  • Cinema trips

It’s pretty clear that housing, food, water and clothes are all things you need to have - you wouldn’t survive for long without eating or drinking anything, and you need things to wear and somewhere to live. The other things such as a trip to see a film or buying a new bike are wants - and you could live without chocolate, much as you might not want to.

Needs vs wants

Or how about thinking in terms of wanting an Xbox. If you chose to buy a video game over paying the electricity bill, you’d pretty soon learn the difference between needs and wants. Especially if the electricity ran out whilst you were playing the game.

Why don’t you all sit down and create your own list of needs and wants. Or for younger kids, print off some pictures of different things and get them to sort the images out into needs and wants. Or if you get a Sunday newspaper, they are full of great photos. Then you can chat through the images as a family. See if you agree on what things you really need to live your everyday life, versus what you would just like to have.

Budgeting needs and wants

It’s ok to spend money on things you want, as well as things you need, but it’s important to make sure you can afford to cover the needs first. The best way to do this is by setting up a budget so you know where all your money is going.

Make a list of all the money you’ve got coming in, and then split it into chunks for different areas of spending. Ensure you’ve got all of the needs - housing costs (rent/mortgage payment), basic bills, essential groceries - covered before you allocate any money to wants, such as eating out or holidays.

In fact there are lots of things kids don’t realise that you pay for - water, heating, electricity and the roof over everybody’s heads. These are all things that are important environmentally too and they have an impact on the planet. It could be an opportunity to talk about issues such as switching lights off when you leave a room, or not running a tap while you clean your teeth.

If you’ve got a family budget, you can talk through it with everyone in the household. If you haven’t got one yet, how about building one together - identifying needs and wants will help you figure out what you should be prioritising when it comes to spending.

Use our online Budget Planner to get an overview of your expenses.

Read the other articles in our Money Explained series:

Sharing and giving

Saving up for something special

Teaching kids how to stay safe with money

The pros and cons of pocket money

How children learn about money

Different ways to pay

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