“I want that!”As a parent, you have probably heard your children make that statement more than a few times while shopping or watching television commercials.
Children understand the power of spending money long before they grasp the concepts of earning, saving, and investing. So, in order to build a solid financial foundation, it’s important for them to understand the difference between needs and wants.
Needs are things you must have in order to survive. Food, water, clothing, and shelter are all needs. A want is something you would like to have, but it is not necessary for your survival. Books, CDs, and toys are all wants. Wants make life more enjoyable, but they are not necessary for survival. Children also need to understand the concept of scarcity, which means they have unlimited wants and limited resources to meet those wants. Scarcity requires people to make choices. Learning “we can’t have everything” is a valuable lesson because it helps them understand why we must make good choices.
Making choices—is it really free? The answer is no. Each time we make a choice, we give up something. If your children have $10, they can’t purchase an $8 toy and a $4 ice cream cone—they must choose between the two. If they decide to purchase the toy, they cannot purchase the ice cream cone. Purchasing the toy is the choice made. They gave up the opportunity of having the ice cream when they chose to buy the toy because they could not buy both with their money. Purchasing the ice cream cone is called an opportunity cost. It’s what they gave up in order to buy the toy. Therefore, making decisions is not free.
Suggested Family Activity
Have your children go through advertisements in the newspaper and pick out five items that are family needs and five items that are family wants. Then, give them$100 in fake money to “spend” on these items. After they have finished “shopping,” sit down and ask to see the needs and wants items purchased. Are they truly wants or needs? Did they run out of money before all 10 items were purchased? If so, explain to them that they just experienced scarcity. They didn’t have enough money to purchase all the items on the list. Share an experience with scarcity that you had to face as a grown-up and encourage discussion about the issue between your children.
How to Raise a Financially Fit Child A Parent’s Guide is provided by the North Carolina Association of CPAs