Wednesday, May 24, 2006

Needs vs. Wants

One of the major problems we have in our financial education these days is distinguishing between needs and wants. Our banks have greatly influenced our financial education by posing as the expert source for learning money management. That is like letting the fox watch the Hen house. They are going to encourage us to borrow money, use credit cards, spend everything we make to boost the economy.

Here is a video (Real Audio File) that is an excellent example of how we are mislead. This is the video's claim: Shopping is a necessary part of everyday life, full of choices and decisions that can greatly impact our lives. This film delvs into why we shop the way we do, and what we can do to be smarter shoppers. Despite the fashion sense of the two main characters, this film contains great lessons like determining your wants versus your needs.

The truth is this video leaves you believing that the secret to distinguishing between needs and wants lies in the fact that you might or might regret the purchase when you get home. If that isn't a way to encourage uncessary spending, I don't know what is. A "need" isn't what most people think it is. A need, in the economic sense, is used for survival - Food, Clothing, and Shelter. It isn't designer clothes, a dinner at and expensive restaurant, or a million dollar home. It is merely the basic product that provides the necessary function to satisfy that need. Everything else is what we want.

The video is correct in the sense that we do make buying decisions based on psychological desires to attract the opposite sex, or fulfill our dreams. That is where we get into trouble, and that is the motivating factor that is leveraged by advertisers. That is how they have turned wants into "needs" in our minds. They've confused us, and we make poor economic choices as a result.

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