How to define “needs” vs. “wants” and teach our teens something about spending and saving in the proces

While staying with my grown daughter during part of our vacation, I noticed that she seemed to have a clear financial plan with regard to spending money on items that she needs as well as on things that she wants, so I asked her how she creates a balance between the two. Interestingly, while I thought there was a clear differentiation between “needs” vs. “wants,” she asked for clarification. I explained that “needs” are things like toilet paper, food, gas money, etc. “Wants” are things like a new pair of shoes if you already have perfectly serviceable ones. She nodded and replied, “I make sure that everything I need is covered before I even begin to think about something I want.” She continued, “It really helps that everything is on-line because I look at both my bank account and my credit card statement at least once a week to make sure it’s all ‘lining’ up. That way I keep a running account of what I have and what I’ve spent."

I also asked her what the most important lesson was that we taught her about money. Her answer was thought-provoking. She said, “The most important thing you taught me was that I don’t have to be afraid of money. It’s not bad to spend, it’s necessary.” Her disclosure brought back some distinct memories for me from childhood.

My father and mother were both extraordinarily frugal people. This is not surprising since both of them lived during the time of the Great Depression. My father, however, took frugality to the extreme. Some examples come to mind:

I remember watching my dad pour cereal into a bowl. The cereal was overrun with weevils (a small beetle sometimes found in open dry goods.) I pointed it out to him, but rather than throw away what he considered “a perfectly good box of cereal” he exclaimed, “Well, it’s just extra protein,” and proceeded to eat the cereal, weevils and all.

Another example: As a preteen I was desperate to have my own record player (yes, yes, I know that dates me!) So, I asked for one for my birthday. On my special day, there it was – handmade by Dad. Housed in a plywood box and assembled from components found at the dump, Daddy had provided a perfectly serviceable record player. I was disappointed because, of course, part of my desire was not just to listen to music but to earn the admiration of my friends by having a shiny new “toy.”

These memories are not comfortable ones and the experience of living with that kind of frugality made me afraid of spending money as an adult well into my early thirties to the point that I would eat pasta rather than protein or vegetables (even though I could afford them) because it cost less. Yet when I think about how parents today seem to purchase every shiny new piece of technology for their children the moment it’s requested, I shudder. Clearly that’s not the answer either.

Surely we can teach our children and teens something about “balanced spending.” The key to that balance begins, I believe, by teaching them the difference between purchasing something they want vs. something they need. I also think that we need to teach them the difference between impulsive vs. considered purchases.

My son, in fact, considers this to be his most significant financial lesson to date. When I asked him what the most important thing we’ve taught him about money was thus far, he said, “Definitely the idea of an impulse purchase. If you want something, wait a few days at least. If you still want it after that, go ahead and get it.”

So here’s your assignment for the week to continue your progress toward creating a financially literate teen:

Have a discussion with her during a family meeting. Ask her if she understands what an impulse purchase is. Ask her if she knows the difference between buying something she wants vs. something she needs. Ask her if she has feelings about money: is she comfortable spending money on things she needs? What about on things she wants? Does your teen understand how to save for an item he may want but not have the cash for immediately? If he does want something for which he needs to save, pull out the calculator and help him figure out how to do that. If you’re using the PASS card with your teen, you can view his transaction record on-line with him and discuss how much he’s spending on “wants” vs. “needs.” Based on that record, you can create a budget for spending and saving for the following month.

Join me next week for another post on how to create a financially literate teen.

Please note that Julie Ross is being compensated by American Express for these blog posts and that any opinions expressed are entirely her own.