Help your child save money by separating needs from wants

An important part of keeping your finances under control is distinguishing between needs and wants. Sounds easy enough that teaching it to your kid shouldn’t be difficult, right? You’d be surprised. “Parents would rather talk about sex with their kids than talk about money,” says Ruth Kewin, president and CEO of four quarters, a personal finance educator focusing on kids.

The first thing Kewin suggests parent and child do is use personal experience to discuss the differences between needs and wants. Here’s mine:
Because of the weather, the new jacket I bought this winter may sound like a need, but there’s more to it. It was a replacement for a jacket I bought two years prior but whose brown finish was marred after it got washed along with a red blanket. It was covered in red fuzz. But was it unwearable? No. I could have sat for several hours and used a lint brush to remove the fuzz. Instead I got a new jacket—a pricey down jacket suited for extreme cold. But despite having spent a previous winter in frigid northern Alberta, did I really need a winter jacket made for the Arctic? Definitely not—I just convinced myself that I was sick of being cold in the winter. What initially sounded like a need was really a want.

Kewin notes that kids typically say everything they want is a need. “That conversation … to get them to make that distinction [between wants and needs] is a fun game for parents to play with their kids.” The parent is also learning about their spending habits and she’s heard times where the child corrects the parent, she adds.

Another way to see whether the child genuinely understands the difference is by letting them experience handling money themselves. Let your child prepare his/her own budget, Kewin says, adding that she tried this with her son and found that it worked.

Children don’t learn how to save money by themselves and even if parents are afraid of teaching them the wrong thing, it’s better that parents discuss the topic, she says.

“The most important thing for parents helping their kids learn about credit cards [and money] is to remember to give it to them in little chunks, not big,” Kewin says. “It’s like anything in life, the teachable moments are when the child or the teen is speaking about something that they want.

“Open the conversation. Don’t tell, ask. How would you go about getting that money for that iPad?”