Needs vs wants; how do you spend money?

Need: require (something) because it is essential or very important rather than just desirable (definition from oxford languages)

Want: To have a desire or a wish for something/somebody (definition from oxford learner's dictionary).

Notice the difference? Your needs has to deal with things that are very important or essential to make your life easier or to help you with your work, while wants are just something desirable, in economic terms, it's simply something a person would like to have, even if it isn't important.

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A lot of people use these terms interchangeably when in essence there are not the same thing. Needs are things like food, water, shelter, and all other basic necessities while wants are something like ice cream or that bar of chocolate you always buy while returning home 😉

Some persons make the mistake of using the money meant for their needs to satisfy their wants. Take for example someone that needs foodstuffs at home and has just $100 which will be enough for a week's worth of food items, but on his way to the market he sees the latest edition of Nike sneakers worth $100 and he buys them! Can you see the problem here? Which of these two items does he need; the shoes or foodstuffs?

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There's something called the scale of preference in economics, and according to explain.com.ng, it's an economic term that means ranking our needs and wants based on their importance. What does this all mean? Let's go back to the example I gave above.

Seeing as the guy (let's call him John) have just $100 and he needs foodstuffs, he sees some cool shoes on his way to the market but he weighs his options; "which one is more important at the moment?". It's the foodstuffs, so he puts that as his priority (top of the list).

After satisfying his need for foodstuffs, John ends up with another $100 some days later and after checking and confirming that he doesn't have any immediate needs, he decides to buy the shoes. That's what we call scale of preference.

So in essence, the scale of preference involves ranking your most important needs and satisfying them first before moving down the list to other items. When I am resuming school in a new year, the most important things I need are house rent, school fees, and foodstuffs, and this is how I rank them;

1. House rent

2. Foodstuffs

3. School fees

4. Other things

The reason why school fees is very low on the list is that we aren't forced to pay it at the beginning of a session, it can be paid within the session which usually spans 6 to 7 months. The most important one there is house rent and I strive to pay that first so I wouldn't end up on the bad side of the landlord.

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Like I said earlier, some persons use needs and want interchangeably and end up spending heavily on things they really don't need while neglecting essential things. I usually see a lot of scenarios like this in my country when it comes to internet fraudsters.

You will see a lot of fraudsters after successfully defrauding their victims, the first thing they do with the proceeds from their crime is to buy cars and lodge in hotels, spending heavily in clubs all around the country.

These are people that are still paying rent but instead of looking for ways to build their own houses, they rather spend their ill-gotten money on frivolous activities. I am in no way supporting crime but those guys are really not smart when it comes to money but as they say; easy come, easy go. But do they get the money easily? That's a topic for another day.

You can see that I mention cars in the above paragraph, does that mean buying cars can't be classified as a need? The funny thing with needs and wants is that they sometimes interchange; what you think is a need today can become a want tomorrow and vice versa.

A car can be a need for someone that wants to be a driver (maybe a taxi or something like Uber). He needs a car to help him make money to satisfy other needs and wants, in this case, the car will be higher on the scale of preference.

Needs and wants are subjective and depend on the individual, what John needs might not necessarily mean that's what peter needs as well. It's just like a person using all her money to buy a camera just because her friend who is a professional photographer brought one, one is a need while the other is a want.

Human wants and needs are insatiable and what this means is that our wants are unlimited but the resources to satisfy them are limited (money), so it's important we know how to differentiate between our needs and wants and rank them properly on the scale of preference.

Closing thoughts

 I fell in love with this topic back then in secondary school and even after so many years, I still remember a lot of what I learned back then about wants, needs, the scale of preference, and opportunity cost (I didn't talk about this one coz I don't want to bore you guys 😆).

I have been using the scale of preference most of the time but sometimes I do give in to my wants and buy something outrageous and not needed, but most times it has helped me to effectively manage my resources.

Do you also use the scale of preference? most people use it without knowing what it is, they just use it subconsciously.

Thanks for reading 💖💖💖

Sunday December 12, 2021