Financial Literacy for Teens: Spending Wants vs Needs

When your teen has money to spend, whether it’s cash from a birthday gift or money from a part-time job, they may be tempted to make an impulse purchase. But will they regret it later when they don’t have money for something they actually need? Teaching them to spend wisely is a lifelong lesson.

Buyer’s remorse can be a valuable lesson for teens so they can learn to think through spending decisions. However, parents can help them become savvier consumers by discussing the difference between wants and needs.

Wants vs Needs

A need is a necessity of daily living such as clothing, shelter, and food. A want is more of a nice-to-have such as a music collection or a vacation. Wants can make our lives easier or better, but we could still survive without them. 

Of course, lots of purchases fall into a gray area, so these definitions have limitations. For instance, most people need a car to get to work or school and run errands, unless they have access to excellent public transportation. Some people want a luxury car but the need is a basic vehicle that gets you from point A to B.

Food is another gray area. You need to eat something, but your food costs change depending on what you choose to eat. Some people consume fast food for every meal. Others are extremely health-conscious and are willing to pay a premium for locally grown, organic produce. If you feel strongly about eating high-quality ingredients, you may choose to save money on other things so you can afford organic kale and leeks from the farmer’s market. Is this because you need to or because you want to? That’s debateable.

Understanding Expenses

Have your teen list all the things they use in their daily lives. For instance, their bed, clothes, desk, computer, food, electricity, gas, water, and so on. Encourage them to think of as many things as they can and to be as specific as possible. Then talk to them about each of those items and ask them what they would do if they didn’t have that item. What would life be like? What would they have to do in order to get those things? 

Discussing Purchases 

When you or your kids are thinking about purchasing something, discuss whether that item is a want or a need. Get an opinion from your teen first and then discuss it. Remember that there is a gray area for many items, and this exercise is more about getting to the why of the purchase than it is about getting to the “right” answer.

Consider a Clothing Allowance

If you provide all your teen’s necessities and spending money goes to wants, they don’t get to practice budgeting for necessities. A clothing allowance gives them the chance to exercise discretion over one category of needs that they may care about: clothing!

To get started, discuss what items they will need to buy. Will you provide basics like coats, shoes, and undergarments or do they need to plan for those purchases? What about special occasion clothing like a prom dress or a suit for a family wedding? You can set a monthly or weekly budget or your teen can submit a budget proposal with an itemized list of items they will need to buy. Remind your teen that you retain veto power over any purchases you find inappropriate.

Have your teen track their spending so you can revisit their clothing budget together annually. Does the amount need to change? Do the funds need to be dispensed on a different schedule? These discussions on real-world spending scenarios can be eye-opening.

Next Steps

Helping your teen understand spending decisions now prepares them for the future. For more on starting your child or teen’s financial education, check out Raising Financially Aware Kids.