Money Talk: Part 1 — Needs vs Wants

💰 What is money?

That’s not an easy question to answer.

Spelman College Economics Professor Suneye Rae Holmes told teen entrepreneur Marsai Martin that money is a “commodity that people acquire just so they can get rid of it.”

Bizarre, right?

We all want as much money as possible so that we can spend it as fast as possible. 

And the ways that we chase it and spend it can be healthy, or not-so-healthy.

Over the next three Tuesdays, we’re going to break down science-backed ways to train kids to make healthy decisions when it comes to both acquiring money and spending money.

This analysis goes beyond understanding math, and dives into the psychology behind positive and negative relationships with money.

My hope is that as we move through these concepts, you’ll not only encounter helpful resources to guide your kids, but that you’ll also revisit some of these ideas for yourself.

Let’s all kick off 2024 with a little self-reflection on positive money management. 👍

The first step in promoting a healthy relationship with money is:

Identifying needs vs wants — and everything in between

Before we even get into teaching kids how to manage their money, we need to train them to understand the concept of “needs versus wants”.

This might seem simple, but it’s really not.

You’re probably familiar with psychologist Abraham Maslow’s Hierarchy of Needs:

At the base of Maslow's pyramid are physiological needs — in financial terms, this translates to covering basic expenses like:

• Food

• Shelter

• Clothing

I think we can all pretty much agree that these are universally objective “needs”.

As we move up the pyramid, “needs” get more subjective from a financial sense, but still carry psychological weight, and it’s important to recognize this nuance.

Financial decisions are not black and white.

Instilling hard-and-fast rules on our kids like “always save 20% of your paycheck” or “never take on debt” doesn’t prepare them to tackle the complex financial decisions that they’ll face in adulthood.

We’ve created an exercise that can help you move through the pyramid with your kid so they can understand their “needs” versus their “wants” when it comes to money.

The bedroom inventory exercise

This is a simple exercise that can lead to incredibly important discussions.

Help your kid take an inventory of everything they have in their bedroom, and categorize it as a “need” versus a “want”.

This is trickier than it sounds.

Sure, there are some easy “needs” like:

• 🛏️ Beds

• 💡 Lights

• ⏰ Alarm clocks

And some easy “wants” like:

• 🧸 Toys

• 🎮 Video games

• 🌈 Posters

But what about clothes? Some clothes might fall into the “need” category, like a winter coat or socks, and others into the “want” category like designer jeans or expensive sneakers.

Other items discovered in the bedroom can reveal a ton of gray area based on your individual circumstances and your child’s goals. This can open up an important discussion about money, privilege, and the value of investing in their future.

• 🎒 Does your kid attend private school with uniforms?

• 🎸 Do they play a musical instrument?

• ⚽ Are they involved in competitive sports?

If so, take this opportunity to share the fees associated with these activities, and discuss the sacrifices you’ve made as a family to afford those fees.

Then, challenge your kid to discuss what they can do without.

The purpose of this exercise isn’t to reduce your kid’s life to the bare minimum, it’s to teach them that true financial literacy isn’t the ability to distinguish between basic wants and needs — it’s the ability to understand value.

Understanding value

Value, in this context, can be described as the long-term benefits your kid might receive as a result of making a strong financial decision. Value can be derived from things like health, advancement opportunities, and even social wellbeing.

For instance:

Let’s say you’re considering two $1,000 expenses with your kid:

1. A season of competitive basketball

2. A new flat screen TV for their room

Even though neither of these are basic needs, one of them presents massive value compared to the other one.

As you go through the bedroom exercise, discuss the value of things that fall into the “want” category, and talk through the gray area.

Merely opening up this conversation is the first step toward rockstar-level financial literacy.