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Building Smart Spending Habits

By December 6th, 2023No Comments
Building Smart Spending Habits

Teaching Kids the Difference Between Needs and Wants

In today’s consumer-driven society, it has become increasingly important to teach children the valuable distinction between needs and wants. With endless advertisements bombarding them from all directions, it is crucial to instil in children the ability to differentiate between necessities and mere desires. By cultivating an understanding of smart spending habits at a young age, we can empower children to make informed choices, manage their resources wisely, and foster financial responsibility.

Understanding the difference between needs and wants is not only essential for personal finance but also for developing well-rounded individuals who can navigate a world of abundance and temptation. By equipping children with this knowledge, we lay the foundation for a lifetime of responsible decision-making and financial independence.

In this article, we will explore effective strategies for teaching kids the difference between needs and wants, offering practical tips and insightful advice for parents, educators, and guardians. We will delve into the importance of open discussions, interactive activities, and real-life examples to engage children in the learning process. By employing these approaches, we can help children develop critical thinking skills, strengthen their financial literacy, and create a healthy relationship with money.

Benefits of Building Smart Spending Habits From an Early Age

Building smart spending habits from an early age brings forth a multitude of benefits that extend far beyond just financial well-being. Here are some of the key advantages:

  • Financial Responsibility: Teaching children the difference between needs and wants helps them understand the value of money and the importance of making informed choices. By instilling responsible spending habits, children learn to prioritise their needs, budget effectively, and make conscious decisions about how they use their resources.
  • Long-Term Financial Security: When children grasp the concept of distinguishing between needs and wants, they develop a sense of financial discipline that can greatly contribute to their long-term financial security. They learn to save for future goals and investments, avoid unnecessary debt, and develop a mindset that promotes financial stability.
  • Critical Thinking Skills: The process of analysing needs versus wants encourages children to think critically and evaluate the consequences of their choices. They learn to weigh the benefits and drawbacks of each decision, developing problem-solving abilities that extend beyond financial matters and into other aspects of life.
  • Delayed Gratification: By teaching children to prioritise needs over immediate wants, we cultivate the valuable skill of delayed gratification. This ability to resist impulsive purchases and prioritise long-term goals can significantly enhance their overall well-being, as they develop patience and self-control.
  • Empowerment and Independence: Smart spending habits empower children to take control of their financial future. They become confident in their ability to make sound decisions, understand the consequences of their choices, and navigate the complexities of a consumer-driven society. This fosters a sense of independence and self-reliance, preparing them for adulthood and the responsibilities that come with it.
  • Reduced Financial Stress: Financial stress can have a profound impact on individuals of all ages. By equipping children with smart spending habits, we provide them with the tools to manage their finances effectively, reducing the likelihood of encountering financial hardships later in life.
  • Lifelong Financial Literacy: The knowledge and skills acquired through understanding needs and wants form the foundation of lifelong financial literacy. By introducing children to these concepts early on, we foster curiosity and interest in financial matters that can propel them to seek further knowledge, develop additional skills, and make informed financial decisions throughout their lives.

Recognising Wants and Desires

In the journey of teaching children the difference between needs and wants, it is essential to help them recognise common wants and desires that often arise in their lives. By identifying these typical categories, we can provide children with a clearer understanding of the distinction between needs and wants. Here are some common areas where wants and desires often emerge:

  • Toys, Games, Entertainment, Gadgets: Children are naturally drawn to toys, games, and the latest gadgets available in the market. These items may bring joy and entertainment, but they are typically wants rather than essential needs. Teaching children to differentiate between the enjoyment of these items and their actual necessity is crucial in building smart spending habits.
  • Fashion and Accessories: As children grow older, they become increasingly aware of fashion trends and may desire the latest clothing, shoes, or accessories. While self-expression through fashion is important, helping children understand that clothing is primarily a need for protection and comfort, rather than solely for following trends, helps them develop a balanced perspective.
  • Extracurricular Activities and Hobbies: Children may have a wide range of extracurricular interests and hobbies, such as sports, music lessons, art classes, or dance classes. While these activities can be beneficial for personal growth and skill development, it is important to discuss with children the financial implications and prioritise them based on available resources.

Encouraging Children to Express Their Wants

It is essential to create a safe and open environment where children feel comfortable expressing their wants. Encouraging open communication about their desires helps us understand their perspectives and allows us to guide them effectively. Here are some ways to encourage children to express their wants:

  • Active Listening: Take the time to actively listen to your child when they talk about their desires or things they want. Show genuine interest and ask questions to better understand their motivations and thought processes.
  • Respect and Empathy: Validate your child’s feelings and desires, even if they may not align with your priorities or available resources. Let them know that their desires are valid and understood.
  • Setting Boundaries: While encouraging expression, it is important to establish clear boundaries and limitations. Teach children about financial constraints and the importance of making thoughtful choices within those limits.
  • Prioritisation and Decision-making: Engage your child in conversations about setting priorities and making decisions. Help them evaluate their wants and understand the trade-offs involved in choosing one desire over another.
  • Teaching Opportunity: Use discussions about wants as teaching moments to reinforce the distinction between needs and wants. Encourage critical thinking by asking questions like, “Why do you want this? How important is it compared to other things you need or want?”

By creating an environment that fosters open communication and mutual understanding, we can help children develop the skills to express their wants while also cultivating a thoughtful approach to decision-making and spending. This process equips them with the tools they need to navigate a world filled with temptations and make choices aligned with their values and long-term goals.

Making Smart Spending Choices

To equip children with the skills to make smart spending choices, it is crucial to teach them about budgeting, prioritisation, and decision-making. Instilling these principles in children will help them develop financial responsibility and a mindful approach to their expenses. Here are some strategies to effectively teach kids about these concepts:

  • Teach Kids About Budgeting

Introduce children to the concept of budgeting by explaining that it involves planning how to use money wisely. Teach them the importance of allocating their resources to different categories, such as needs, wants, and savings. Encourage them to create simple budgets for their allowance or any money they receive.

  • Allocate Money for Needs and Wants

Help children understand the distinction between needs and wants when budgeting. Explain that a portion of their money should be designated for meeting essential needs like food, clothing, and school supplies, while another portion can be allocated for discretionary wants.

  • Teach Prioritisation and Decision-Making

Guide children in prioritising their spending by discussing the importance of certain needs and wants over others. Encourage them to think critically and evaluate the value and impact of each expense. Teach them that making informed choices involves considering factors like quality, usefulness, and longevity.

  • Assess the Importance and Urgency of Wants

Discuss with children how to assess the importance and urgency of their wants. Help them differentiate between immediate desires and those that can be delayed. By understanding the difference, children can make decisions that align with their long-term goals and financial well-being.

  • Discuss Delayed Gratification and Saving for Wants

Teach children the concept of delayed gratification, emphasising the rewards that come from patiently saving for something they want. Encourage them to set goals and allocate a portion of their budget towards saving for specific wants. This helps children develop patience, discipline, and an understanding of the value of their choices.

Incorporating these strategies into discussions and activities can help children gain valuable skills in making smart spending choices. They will learn to manage their money effectively, prioritise their needs and wants, make thoughtful decisions, and practice delayed gratification. These lessons lay a solid foundation for a lifetime of responsible financial habits and equip children with the tools they need to navigate the complexities of personal finance.

Setting Financial Goals

Teaching children to set age-appropriate financial goals is an excellent way to instil a sense of purpose and responsibility when it comes to managing money. By engaging children in goal-setting activities, parents can help them develop valuable skills and a long-term vision for their financial well-being. Here are some activities categorised by age group to assist parents in teaching their kids about setting financial goals:

Preschool (Ages 3-5):

  • Coin Jar: Introduce the concept of saving by providing a clear jar or piggy bank. Encourage your child to collect coins and occasionally count and celebrate the growing savings. This activity helps them develop a basic understanding of saving and setting aside money for future needs or wants.
  • Wish List Collage: Help your child create a collage of pictures representing their desired toys or activities. Discuss the idea of saving money over time to achieve these goals. This activity encourages them to visualise their wants and understand the need to plan and save for them.

Elementary School (Ages 6-10):

  • Goal Savings Chart: Create a savings chart with specific financial goals. For example, saving for a new toy or a special outing. Each time your child saves money towards their goal, they can mark their progress on the chart. This activity reinforces the concept of setting achievable goals and tracking their progress.
  • Allowance Budgeting: Introduce a weekly or monthly allowance and help your child allocate their funds across different categories, such as saving, spending, and giving. Encourage them to set goals for each category and make choices accordingly. This activity promotes budgeting skills and responsible decision-making.

Middle School (Ages 11-13):

  • Savings Plan for Larger Purchase: Help your child identify a bigger-ticket item they would like to save for, such as a bike or gaming console. Discuss the cost and time needed to reach the goal. Teach them to set a savings plan with specific targets and deadlines. Encourage them to track their progress and adjust their spending habits accordingly.
  • Entrepreneurial Ventures: Encourage your child to explore small entrepreneurial endeavours, such as running a lemonade stand or offering services like pet sitting or lawn mowing. Help them set financial goals based on their earnings and guide them in allocating their profits wisely.

High School (Ages 14-18):

  • Part-Time Job Goals: If your teenager has a part-time job, guide them in setting financial goals related to saving for college, a car, or other significant expenses. Help them create a budget that accounts for their earnings, expenses, and savings objectives. Discuss the importance of prioritising long-term goals over short-term spending.
  • Researching Financial Education: Introduce your teenager to resources and tools that provide financial education, such as books, online courses, or workshops. Encourage them to explore these materials and set goals for expanding their knowledge and understanding of personal finance.


Teaching children the difference between needs and wants is crucial for developing their smart spending habits and responsible money management skills. By helping them understand the distinction, children can make informed financial decisions and prioritise their expenses effectively. This knowledge empowers them to make thoughtful choices aligned with their values and long-term goals. Engaging children in conversations about budgeting, decision-making, and prioritisation fosters critical thinking and develops their ability to be mindful consumers. It equips them with the skills they need for financial independence, avoiding debt, and achieving their long-term financial goals.

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