Needs and wants have become the pillar of any financial education programmes. If we want to control our spending, before buying something, we should first think whether it is a need or a want. But does that really work? Try to talk about needs and wants to people who live with a few dollars a day- they have to prioritise between needs… and other needs, without any idea if and how much they will earn tomorrow, and what emergencies they may have to pay for. In a workshop, a few years ago, participants classified TV as a need and fruit as a want: TV was important to get news (it was in Cambodia and they argued that if the Khmers Rouges were coming back, they had to know- it was vital) and fruits were sweet luxury. What about a bike to ride to school? If my family’s income doesn’t allow me to get a bike, it may be a “want”… but if my friends’ parents earn a higher income and can afford buying my schoolmate a bike, they consider it a “need”- you can replace bike by uniform, computer, college… how fair is it that things shift from “want” to “need” depending on how much you earn? How can we- as facilitators, with a regular income paid every month by our employer and probably some health insurance to cover basic emergencies- how can we judge what a need or a want is? Do we personally spend on “needs” only? Isn’t treating ourselves with a ‘want’ only allowed to richer people? At best, needs and wants are a foreign concept that may only be relevant for people who are comfortable enough to pay for wants. As it is felt as a foreign concept, it won’t work with very low income people.
Apart from depending on income, life styles and values, the border between “needs” and “wants” has quickly blurred over the years. Where do you put a cell phone? A smartphone? What about a landline phone– this latter probably went in then out of “needs” in a generation’s time. Marketing is quite efficient into shifting items from wants to needs – either through advertising or peer pressure. It also depends on the level of community development. If you live in Northern Europe, you don’t really have to classify education in needs because school is free, including most universities; but if you live in South East Asia, education is a need you have to pay for. A car is a need in middle size cities in the US where communities have not invested in public transport, but a luxury in big cities. What about air con? Or central heating? electricity? Many expenses have shifted between needs and wants over time or place. Besides, different lifestyles are so visible to all now, through TV and internet, that it is hard to argue that things like tablets and internet are not “needs”; technology is a cost-effective way to bring education to rural areas, give farmers information on price markets to help them sell at best, educate people about basic health, etc… But if you earn $5 a day, use $2 to pay back debt and the rest to feed your family, tablets are “unaffordable needs”.
Some expenses are hard to fit in either in needs or wants: wedding expenses – either for the bride and bridegroom’s family paying for the ceremony or for the guests getting new clothes and buying presents in-kind or in cash – funerals, or religious or customary holidays? How will your family, relatives, friends and neighbours see you if you attend a wedding with a dress you have already worn on many occasions? Or if you get married and only invite close family? Or don’t give any money to the bride and bridegroom because it is the fifth wedding you attend this month but the newly led know that you gave $60 last week at their cousin’s wedding? It is often easy for Westerners who live in a less socially tight world to shift these expenses as ‘extravagant’ or wants. In Raining Stones, a 1993 film by English film director Ken Loach, a father desperately tries to find money to buy his daughter a first communion dress. Whether a need or a want, his goal (buying a dress) impacts all his decisions – for the best or for the worst. Social expenses are difficult to classify in “wants” – human beings are social beings.
Another very common expense does not easily fit in “needs” or “wants”: debt. To get back to the bike example, if my parents borrow money to buy a bike, then the debt payback (and the interest) will be a “need”- how come a bike would be a “want” but the debt reimbursement is a “need”? And if the debt is too large to pay back, we will cut down on food- what is more of a need: paying back the debt or eating? If I borrow money to buy a super flashy car, is the debt a “need” or “want”? Or if I rent a house which swallows up 80% of my income, is the rent a “need” or a “want”? Bills, rents, debts, etc… have to be paid because we have committed to but they may hide “extras” or “wants” that we could have done without- The trouble is once we are committed, we have lost our ability to decide and cut down. Needs and wants don’t tell us anything about the flexibility to adjust down or re-prioritise an expense: we can reduce food spending… but we can’t reduce debt or rent once we have signed for it. Where do fit bribes – extra money given here and there when bribe has been institutionalised in a country?
So, should financial education stop teaching about “needs” and “wants”? As educators, we have to understand why include “needs” and “wants” in a programme. What are we trying to achieve or change in our participants’ behaviour? The point is not the concept of “needs” and “wants”– because as we have just seen, it can be very wobbly and fuzzy – but the point is to give participants a tool for decision which works for them: a decision-helper that they internalise and use whenever they spend. Needs/wants may be a good one for those who have an income that allows some flexibility. In many cases though, “needs” and “wants” are too simple, general and irrelevant. Just like a spoon to dig a hole – an inadequate tool. Your financial education programme should focus on how the way we prioritise expenses impacts our lives and how we can improve the way we prioritise.
Assess your participants’ spending pattern first in order to build a relevant programme. Run games with expense cards and toy banknotes for example in which they have to choose between various expenses several times in a row within a set income. Start simple with a few clear-cut expenses to choose from and gradually multiply expenses, including destructive ones (cigarettes, alcohol, gambling…), social expenses and commitments, mixing daily, weekly, yearly expenses and emergencies. Allow your participants to “un-do” their choices (unlike real life) and see if other choices work better. Through these trials and errors, introduce practical ways to manage expenses, like planning and saving for a yearly celebration or school fee or keeping a list of future commitments and goals when they go to the market.
Vary the income (up and down): the choices we make depend on our incomes and very often, when we get a higher income, our sense of priorities changes and social pressure may increase too: expectations from family members may grow like our income. It is not uncommon for people who go from dire poverty to a less vulnerable situation to spend more and take more debts. You want your programme to arm your target groups with decision tools and mind-sets that will help them all their lives, whatever ups and downs they may go through.
Through these games, let participants realise by themselves how to implement what they experience through the games, for instance how to anticipate bills and commitments and set money aside whenever they earn money or what to think about before taking a new commitment. Let them find out what expenses they can control (food, hygiene, going out…) and which ones they have lost their decision power (commitments); let them experiment how a bigger expense now (buying a motorcycle helmet, going to the optician to have one’s eyes checked, or buying clean water) can help prevent health issues and decrease future expenses. Let them realise that a smaller burden today (expense paid with borrowed money) means a bigger burden tomorrow (debt pay back + interest) and how that impacts the other expenses. Run these games in small groups to encourage participants to discuss their choices- like at home, individual decisions will impact the whole family. Learning to discuss and take decisions collectively will avoid many heated or even violent arguments.
Money management is all about the choices we make, and their consequences. Go beyond simplistic “needs and wants”: empower your participants (whatever their situations) to make better decisions and not let others decide for them.