Financial Literacy for Children: Episode 3 – Needs Vs Wants

“The moment you learn to separate your wants from your needs, your vision becomes clearer.”

― Kemi Sogunle

Previously, on BYJU’S Piggy Bank:

• Here’s how to talk to your child about money matters 
• Financial Literacy for Children: Episode 1 – Introduction to Money 
• Financial Literacy for Children: Episode 2 – What is a budget? 

In the previous episode, we covered the concept of budgets and how different people have different budgets to suit their individual needs. We now know that budgets change as per the needs and wants of the person creating the budget. That is why it is critical for us to understand the difference between needs and wants. 

Today, we will explore:

• What are needs and wants?
• How to decide what to buy and when?

(Parents can read the sections at a pace appropriate for their child and then solve the worksheet together.)

What are needs and wants? 

First, let us learn what we mean by ‘need’ and ‘want’. Needs and wants are very different things. We cannot use these words interchangeably.  

Need (verb) means to require something that is essential or very important.

Want (verb) means to wish or demand the presence or possession of.

For example:

Tia’s parents have set aside ₹20 for school supplies. This means they have given her ₹20 to buy everything she needs for school.

• Tia needs pencils to write down what the teacher teaches in the classroom.
  • It means that without a pencil, Tia will not be able to write down what the teacher teaches in the classroom. 
  • A box of pencils costs ₹10
• Tia wants a brand-new golden glitter pen because it looks fun, and she is bored of her blue glitter pen.
  • It means that Tia already has a glitter pen that she can use, but wishes for a new one. 
  • One glitter pen costs ₹20

We can fulfil both our needs and wants by buying things using the money we have set aside for spending in our budget. 

Sometimes, people get confused between their needs and wants. What happens then? They end up spending money on things they want, with very little left for their needs. Let’s think about Tia.

If Tia gets confused between her needs (pencil – ₹10 per box) and wants (one beautiful pen – ₹20) and decides to buy the beautiful pen, she will be in trouble at school for not having a pencil.

That is why it is important to know the difference between needs and wants. 

Exercise: Take the help of your parents and make a list of all the things you need and want next month. 

How to decide what to buy and when?

Now that we understand what we ‘need’ and ‘want,’ the question arises –  How do we create a budget so that we can buy both – things we need and things we want? 

For example: 

• Ayan has allocated ₹100 for food in his monthly budget. Here is a list of things he needs and wants: 

Needs: Fruits (₹30), Vegetables (₹20), Milk (₹10), Rice (₹10) = ₹70

Wants: Pizza party with cousins (₹40), ice-cream party with cousins (₹15)

• Now, how does Ayan decide what to buy?
  • Ayan first tries to fit in all the needs in his budget.  We can see that these are needs since they will help him have a balanced diet. 
  • Next, Ayan checks if he has enough money left for things he wants, such as a pizza party or an ice-cream party. He has ₹30 left.
  • Ayan chooses to have two ice-cream parties (₹15+₹15=₹30) with his cousins. He makes the wise decision not to go beyond his budget, which means he does not spend more money than he has. 

• Tara has also allocated ₹100 for food in her monthly budget. Here is a list of things she wants and needs: 

Needs: Fruits (₹30), Vegetables (₹20), Milk (₹10), Rice (₹10) = ₹70

Wants: Pizza party with cousins (₹40), ice-cream party with cousins (₹15)

• Now, how does Tara decide what to buy?
  • Like Ayan, Tara tries to fit all the needs first into the budget. She needs to have balanced meals too. She sets aside ₹70 for her needs. 
  • She also has ₹30 left to save or spend on her wants. 
  • Tara has practiced budgeting for a longer time than Ayan. Practice has improved her budgeting and planning skills. Tara loves pizza and knows that if she saves her extra money, over time she can afford to spend it on a pizza party. 
  • Tara did not have a pizza party last month with her cousins and saved ₹30. This month also, she has ₹30 extra.  She has a total of ₹60 to spend on her wants this month and can easily have a nice pizza party with her cousins without worrying about the budget. 

How interesting that budgeting can help us save money to buy what we want! 

Exercise: What would you do if you were in Tara or Ayan’s place? Would you have a pizza party every alternate month, or an ice cream party every month with your cousins? 

<Download the worksheet here>

Disclaimer: This blog has been written for children between the ages of 5 to 7. The information has been presented accordingly. Parental discretion is advised. 

Also read, 

• Financial Literacy for Children: Episode 4 – What are Savings? 
• Financial Literacy for Children: Episode 5 – What is Investing?