Rome wasn’t built in a day and neither were financially-smart kids. The secret to setting your kids up for a solid financial future is to start with the basics. Deeper than the value of a dollar, budgets and why it’s so important to save lies the very basic lesson of: wants and needs are not the same thing.
While the difference between wants and needs may feel straight forward to grownups, the concept can be complex to kids. Breaking down needs, wants, the fine line between the two and how to make trade-off decisions is critical for instilling money management and financial planning skills.
Know your needs
Needs are essentials. When teaching your kids how to determine what a need is, it’s important to highlight what is a true necessity and what is a needy request —it’s all about perspective. Here are the categories we consider bare necessities:
We find that getting as specific as possible when explaining necessities helps kids master the concept and begin to apply it in real-life trade-off decisions.
Tell me what you want, what you really, really want
If you’re a parent, you’re probably used to hearing the rally cry “I want _____” from your kids. Wants can be described as the things your kids may circle in a magazine or put on an Amazon wish list for the holiday season. Greenlight mom Bonnie Koon even shared that her son once requested $10,000 via his Greenlight app.
Wants are often inspired by peers, pop culture and hobbies. Here are some hopeful requests made by Greenlight kids. We’ll wait while you have a giggle or two.
When raising financially-smart kids, it’s important for parents to let their kids know that wants are a part of life but making smart choices around those wants will set them up for success.
The gray area
No lesson in needs and wants with a child is going to be easy peasy lemon squeezy, 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. Are Yeezy’s shoes? Yes, but $300 for a pair of shoes is not necessary or a requirement.
It’s important for parents 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. In general, having a discussion around “wanting” things in life can be a powerful and inspirational discussion. You can want to make the soccer team. Want to be president. Want to have a family when you grow up. It is wants and dreams that put humans on the moon and brought us Beyonce. But when it comes to finances – you can’t always get what you want.
Being able to tackle these types of questions head-first will help kids understand the true meaning of a necessity instead of something they very much want, crave or think they need to meet the status quo.
One way to help kids fully understands wants and needs would be to have them write a list of what they think are needs and what they think are wants. From there, break down needs — if they are a true necessity or not — and tackle what goes into getting a want (such as saving for that pair of Yeezy’s or picking up extra babysitting opportunities to help pay for the spring break trip to New York City). To take it a step further, discuss a budget of $1,000 with your child and include a mix of needs (rent/groceries/phone or car payment) and wants (a new iPhone/concert tickets/new shoes) to showcase that all needs must be met before money goes to wants.
Want it? Save for it
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 $100 extra each month after covering necessities? Add extra money to your savings goal to buy a new MacBook. These wants can act as perfect motivators to increase saving.
Setting up clear savings goals with Greenlight will not only teach kids how to set a savings goal and budget to meet their desired goal, but it will motivate them to save more in the long run. We’ll be talking more about saving in November, so stay tuned for tips from Greenlight families on how to have the right money talks.