Personal Finance Part 13 - Differentiating Between Needs and Wants

So much has been said about personal finance in my previous write-ups and postings, but the key issue which I had mulling about is how we, as humans, classify our possessions and services which we use. Each person has his or her own unique perspective and upbringing and therefore no one person will view “needs” and “wants” in a similar manner. That said, in affluent Singapore, which is one of the richest and most prosperous countries in South-East Asia, the distinction between needs and wants is slowly but surely blurring. This post is to explore underlying beliefs of mine as to what constitutes needs and wants, and how we can build a comfortable nest egg to achieve our retirement financial goals.

In a basic Maslow’s Hierarchy of Needs chart, needs are made up of basic security needs and food and water (subsistence), which half the world does not really have adequate amounts of. In Singapore, we are much luckier than the average human being in that we have plentiful amounts of food, drink and shelter; thus we can theoretically move on to a “higher plant” on Maslow’s hierarchy, exploring issues of esteem and self-actualization. Now that we have got past the basic issues in life, we tend to yearn for something extra to improve our quality of life, and this translates into possessions which used to be “wants”, but gradually became recognized as “needs” as society progressed.

Some examples of “wants” which are not viewed as “needs” include a personal computer (PC), handphone, iPod, iPhone and television. Some may even throw in a car as a necessity, even though Singapore is arguably one of the smallest countries around (we are referred to somewhat condescendingly as a “tiny red dot”). The reason for the upgrade in perception is because these items (mainly gadgets I may add) have elevated our lifestyles to such comfort and convenience that we have become accustomed to it; and once human beings reach a level of comfort, they are unlikely to want to give it up and revert to a “simpler” and more basic way of living. This fact is probably the single most pervasive reason why people tend to upgrade their lifestyle and not downgrade (unless compelled to for financial reasons). Another reason is Asian’s issue of “face”, whereby one would perceived to be looked down upon if one had to downgrade or live a life more devoid of possessions than someone else.

So as materialism and “affluenza” take over our culture, people are becoming increasingly obsessed with material and physical possessions. When gadgets become a need rather than a want, this translates into needless spending just to “keep up with the Joneses”, and it is a never-ending self-destructive cycle of envy, comparison and jealousy. The news reports on the latest version of the iPhone 3GS attracting hordes of ardent fans, and such blatant advertising for a glitzy phone just serves to feed the frenzy further. Some teenagers resort to changing a new phone every 6 months just to “keep up with the trend”, and their parents continue to indulge them in such wanton acts of wastage. Where necessity gives way to fashion and chic, that is when one loses sight of what constitutes a need and a want. Marketers are increasingly being accused of predatory advertising, especially on young, innocent and gullible children. Flashy, stylish ads are designed to make you feel that the advertised item is a necessity in your life, and is marketed as “something you cannot do without”; in addition emotional advertising is utilized to full effect by appealing to consumers’ emotional response to a product or service, rather than focus on its features and functionality. These subliminal messages are insidious and slowly alter the sub-conscious of a large swath of youth, slowly transforming them into semi-mindless zombies, always wanting more.

Personally, I’ve always felt that we should pursue the simple pleasures in life without burdening ourselves with too many material possessions, otherwise we will start to feel empty as human beings are after all, group creatures. It is relationships and human warmth which fill the soul and makes one feel satisfied. Take the example of a father who showers his child with gifts and toys to make up for his lack of time spent with his child as he always has to work till very late. The toys and gifts are not enough to make up for the quality parent-child bond which money cannot buy. In fact, the example serves to reinforce that those things which money are unable to buy are the most valuable. Attributes such as love, care, concern, listening, attentiveness etc all contribute more to warm the human heart than all the material possessions.

In case the above paragraph sounds a little too clichéd, let me reiterate that I had once gone through the materialism phase as well when I was much younger. The fantasy with new toys fades just a few weeks (sometimes even a few days !) after playing with them, and I start yearning for yet another toy. The same can be said for the prevalent “retail therapy” syndrome which seems to infect Singapore – the purchases do not increase satisfaction and happiness to a lasting degree. As humans, we will always covet and want more, and this is a natural tendency; but to let it get out of control would turn a natural human instinct into a cardinal sin.

Therefore, my advice to readers would be to properly assess if an item or service is a “want” or a “need” based on your financial profile and retirement needs. No use buying a car just for convenience when you cannot afford the instalment payments and petrol costs. I invite readers to share their perceptions of “needs” and “wants”, and also how you judge if a big-ticket item falls into one category or the other? How often do you allow yourself to be pampered even if the item is a “want”?