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Kids and Money: How to Reframe the Need-vs.-Want Talk

Teaching kids the difference between what they need and what they want is an important part of raising them to practice sound money habits. Remarkably, the distinction is not always clear. Advertisers are darn good at blurring the line.

So kids may feel they need $200 Nikes to make the basketball team or a new iPhone to be in contact with you on Saturday night. Still, with any guidance at all -- and a few well explained limits -- even a young child will quickly grasp the difference between, say, needing food and wanting ice cream.

Which is why need vs. want often is a short conversation and, unfortunately, leads to many overlooked teachable moments. Dismissing a child's request by explaining to them that they do not need the thing in front of them misses the point. Almost everything a child wants they do not need. The more productive conversation is on distinguishing between what they want, and what they want more.

Want vs. want is far more relevant. After all, most kids' needs are taken care of for them. Their struggle is identifying how badly they want one thing if it means doing without another. In other words, they must learn to set priorities, and that's a lot more involved than simply decoding whether something they desire is needed or simply wanted. "This gets you and your child into areas like setting goals and weighing consequences," says Stuart Ritter, a financial planner focused on kids' money issues at fund company T. Rowe Price. "And that's a thought process that will serve them well into their 20s and 30s and beyond."

In Ritter's view, framing the question not as a want vs. a need but as a want vs. a want-more leads to a continuous dialogue as your kids sort through their many options. Here are five keys to getting the dialogue started and making the most of each teachable moment:

· Set goals Talk to your kids about the things they want and how much it costs to buy and maintain something like an Xbox, iPod, Trek or trendy wardrobe. Help them calculate how long it will take to get what they want by saving every dime of their allowance along with any income from chores, odd jobs, and gifts from grandma.

· Determine priorities Once your kids appreciate how long it will take for them to save enough to get the things they desire it should be easy to have the conversation about what they want and what they want more. This discussion should include long-term and short-term goals and make clear how short-term wants get in the way of long-term goals.

· Be flexible Goals and priorities change. Kids should be comfortable shifting their desires as they see the time, effort and cost involved. Changing their mind about what they want is usually a sign that you are getting through to them.

· Start saving None of this will matter if the kids don't start setting something aside right away. Encourage them to tuck away at least 20 cents for every $1 they receive. Once they see their savings start to grow they'll have more incentive and a better idea how to prioritize their wants.

· Be available Money conversations are most effective when they occur over time and at moments when your child is most open to discussion, like at a point of purchase. This isn't the sex talk -- one and done. This is a Bank of Dad commitment.

Photo courtesy Flickr user luschei:
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