What distinguishes needs from wants?

The distinction between needs and wants is fundamental in personal finance and budgeting. Needs are characterized as essential items that are necessary for survival, such as food, clothing, and shelter. These are basic requirements that, without them, one cannot function or live healthily.

On the other hand, wants are items or services that enhance one's quality of life but are not essential for survival. They encompass desires for luxury items, entertainment, and other non-essential goods and services.

The correct answer highlights that needs are essential and must be prioritized in financial planning, while wants can be considered as discretionary expenses. Understanding this difference helps individuals make informed decisions about their spending habits, ensuring they meet their fundamental requirements before indulging in non-essential items.

The other options do not accurately reflect this distinction, as needs are not categorized as improving quality of life in the same way wants do, and essential needs are not determined by their cost relative to wants.