The other day and I heard about a study that was conducted by Michael Mischel – a psychology researcher at Stanford University. The study demonstrated the importance of ‘delayed gratification’ or self-discipline, and its role in role in long-term success. Mischel defines self-discipline as ‘the ability to delay immediate gratification in exchange for long-term success.’ In this brilliant and confronting experiment he offered hungry four-year olds marshmallows and left them alone in a room. He told the youngsters that he would return in a few moments and if they could resist eating the marshmallow they would receive some more. Not surprisingly, most of the youngsters were unable to resist the temptation and ate the marshmallow as soon as they were left alone. A few managed to resist for a short time but then ate them, and some were able to control themselves and received their promised reward. The children were interviewed many years later with startling results.
As Mischel suggests:
 
“The differences between the two groups were dramatic: the resisters were more positive, self-motivating, persistent in the face of difficulties, and able to delay gratification in pursuit of their goals. They had the habits of successful people which resulted in more successful marriages, higher incomes, greater career satisfaction, better health, and more fulfilling lives than most of the population. Those having grabbed the marshmallow were more troubled, stubborn and indecisive, mistrustful, less self-confident, and still could not put off gratification. They had trouble subordinating immediate impulses to achieve long-range goals. When it was time to study for the big test, they tended to get distracted into doing activities that brought instant gratification. This impulse followed them throughout their lives and resulted in unsuccessful marriages, low job satisfaction and income, bad health, and frustrating lives.”
 
I see financial management as a type of ‘delayed gratification.’ You often don’t see the results of your decisions immediately; they take time to come to the surface. The decisions you make today will shape your future. Spending money is a type of ‘instant gratification’ – it makes you feel better (for a short while), kind of like an anaesthetic. The problem is most people fail to develop a long term perspective with their finances, the fail to understand how their decisions today will influence their tomorrow.
I have decided to train for the Sydney Marathon, probably the most challenging thing I have ever done. I have decided to sacrifice my time, energy and feelings (especially at 5am on a freezing winter’s morning) and delay my gratification. I know, well I hope, that the countless hours of sacrifice will be worth in when I cross that finish line.
 
My wife and I have decided to sacrifice that family holiday and that new car and for a new house that we are saving for. We know that one day, one day in the very distant future, it will be worth it. I am not saying become stingy and tight with your money, but what I am suggesting is that you need to develop the discipline of delaying some things and focusing on your financial goals.
 
As a parent, you can do a number of things to help your children appreciate the importance of delayed gratification:
 
Lesson #1: Things require time:
 
We live in a world where everything is instant. We can go online and talk to people anywhere in the world, we can order a take away pizza that is delivered to our house within half an hour and we get frustrated if we have to wait at the checkout for a few minutes. Things like character and financial integrity take time to develop.
 
Lesson #2 The power of earning
 
It’s funny, you seem to look after things better when you pay for them. When I first got my driver’s licences my father used to let me use the car. To be honest, when I had driven round the corner and when I was out on sight I used to give that accelerator a little ‘push.’ I used to leave take away food wrappers on the floor and the petrol was always left empty. I am not particularly proud of how left the car, but I learnt a valuable lesson. When I purchased my first car (it was a speedy Ford Festiva), I made sure that I looked after it – for a while. My point here is that when you purchase something with your own money, your own hard earned cash, you tend to look after it better. As a parent, you can teach your children these principles.
 
Lesson #3 “You are the example”
 
I am not a parent, but I am a primary school teacher. One day, while I was teaching a lesson to a Year 2 class, I heard one of my students say the word ‘awesome.’ The word sounded familiar. The day before I was having a casual conversation with a colleague and I had been describing my experience on my first class. I was amazed, and slightly shocked that one of my students had heard me say it and then used the word in one of their own sentences. As a parent, don’t ever forget the example that you are to your children. It’s a little hard hitting, but your children will copy, or at least be influenced by, what you do and say. In terms of your finances, it is important to know that your children are watching you. Habits, and in particular financial habits, are learnt and engraved at a young age.
 
Thanks
 
Mat

Just because you don’t acknowledge something doesn’t mean that is goes away. I remember being little and playing hide and seek with my grandad- I would usually be ‘it.’ My counting skills probably weren’t that advanced so I most likely only gave him up to 13.

When it was my time to hide I was convinced that if I simply covered my eyes and hit my face that i would instantly become invisible to the world. My justification was that if no one else could see me I was invisible – evidently all brilliant minds start off somewhere.  If could not ‘see’ the problem (in this case the person that was trying to find me) then they simply didn’t exist.

Another example is when I received a parking fine (many examples could be made here). I decided to ignore the original $129, or so, fine that I received and decided that it would simple ‘go away.’ To my amazement, a month later i received a lovely letter advising me to pay the amount by the specified date; I decided to decline their kind offer. To my amazement i received another reminder with an additional late payment fee – my fine had now reached $179.  I decided to pay the full amount and, as I will still at university, didn’t eat for a fortnight. I would like to be able to tell you that i learnt from this experience but many more late payment fees for parking fines followed.

My point here is that things do not go away simply because you ignore them, or because it’s not a ‘convenient time.’ It is never convenient to pay a bill or pay down debts but ignoring them is the worst thing you can do.  

Ignoring the reality of your finances doesn’t fix them – ignorance is not bliss..

Please continue to let us know what you think about the mycents posts…

Mat

Since I’ve started working full-time, I’ve really noticed how important it is to keep a budget. It’s not hard to make one – but I’ve found it makes a huge difference to my savings goals and helps me keep my spending under control. Basically, my budget consists of how much I earn (I get paid monthly, but the same principle applies if you get paid weekly or fortnightly too), then I break that down into how much money I need for my general living expenses, paying my board at home, petrol for my car, some money I give to my church, and other things like my mobile bill. Then I take out how much I want to save, and what’s left is my own money to do what I want! Some people get really detailed in their budgets, listing things like groceries, movie tickets and things, but mine’s a bit more general. When you have all the numbers in front of you, it’s easy to see where your money goes – and then you can play around with those numbers if you want to save more – or have more money to spend!
Cheers!
Luke

It’s story time

So you fill up a pale of water (quite like a familiar nursery rhyme, one of my personal favourites), and you begin your journey back to the campsite so that you can start the washing up. By the time you get back to your tent your bucket is empty. You look down and see that there are a number of small holes in the bucket and notice that they water has been slowly leaking through. Upset with the situation, you ignore the holes in the bucket, walk a back to the tap and refill the same bucket with more water… once again by the time you walk back to the dishes the water  has leaked all over the floor. Still upset with the situation, you walk back to the tap and try again…’

The problem here is that despite your effort, and despite the fact that you REALLY want the water to stay in the bucket it didn’t. It doesn’t take a genius to work out why – there is a hole.  I’m sure that the person in the story was really nice, that they had great intensions, and that they really wanted the water to stay in the bucket – but yet it didn’t.

My point here, in this long winded illustration, is that this same concept can be applied to our finances. If you do not ‘plug the holes’ in your budget you will inevitably find yourself back where you started.

The truth is, if you do not acknowledge the problem, you cannot move forward.

What are some of the holes in your financial plan?  They might be:

• Constantly missing the payment date on a credit card
• Paying the minimum balance on your credit card and feeling like you will never pay it off
• Borrowing money for depreciating assets

What are the little things that are making it difficult to make progress with your finances?

Habits are interesting things:

We are what we repeatedly do

Excellence, then, is not an act, but a habit

                                                                  Aristotle

The famous educator Horance Mann suggests that:

‘Habits are like a cable. We weave of strand of it every day and soon it cannot be broken.’

I  understand what Mr. Mann is suggesting and believe that habits that we make, and break, are important – but I don’t agree that they cannot be broken. Habits may be hard to break, but they can be changed and replaced with ones that empower you – it just takes time, effort and an acknowledgement of our reality

A habit is an interesting thing. I have been intending to go for a run at 5:30am each day for about 12 months now. I honestly prepare myself for it each night and I am totally convinced that when the alarm goes at 5:15am I will spring out of bed and excitedly put on my runners – it has never happened, but some day I will do it.

I heard a saying once, by Stephen Covey, that it ‘take 21 days to break a habit’ – I tend to agree, I think the man is a genius! Mr. Covey suggests that:

“Habits have tremendous gravitational pull – more than most people realise or would admit.  Breaking deeply imbedded habitual tendencies involves more than a little willpower and more than minor changes in our lives.”

                                                                Steven Covey ‘The Seven Habits of Highly Effective People’ p47

I thought would apply these principles to handling your finances – ‘surprise, surprise.’
How does your past affect how your handle your money today?
What financial habits have you developed?
What habits do you need to change?

We all fall into habits and ‘ruts’ in our lives, we all have things that we do that frustrate us.

What changes can you make TODAY to manage your money better in the future?

Mat

At mycents we believe in encouraging young people to make sound and educated financial decisions.

The wall….

mycents.com.au cannot give you financial advice, we do not know your financial situation. What we can do is help you to develop your understanding of how money works and how you can make it work for you.  Money will not solve your problems, but understanding how it works will give you options.

We all face financial questions:

• How much change do I get from $100?
• Can I afford to buy both of those pairs of jeans and still eat?
• How can I save $3000 to go to Fiji?

As Robert Kiyosaki suggests in his brilliant book Increase your financial IQ ‘solving money problems make you smarter.’ I believe that the challenge of facing your financial situation and ‘figuring out’ how to achieve your financial goals increases your understanding of how money works.

“Seek to Understand” how your money works and be committed to figuring it out.

Mat

The following has been taken from (WEM, 2009, p31)

”Twelve concepts Every Young Person Should Learn About Business Before Graduating High School.

1. The importance of mental and physical health
2. The joy of business and opportunity  recognition
3. The economics of one unit
4. The laws of supply and demand
5. Don’t compete, CREATE a comparative advantage
6. Wealth creation
7. Marketing: putting yourself in the customer’s shoes
8. Leadership and giving back
9. Financial statements (ROI and breaking even)
10. The basic sales call
11. How to write a business plan
12. The rule of 72”

 (Educating the next Wave of Entrepreneurs, World Economic Forum, April, 2009, p31)

If you haven’t read, or at least seen the report I would strongly advise that you do. It is lengthy, so I am not suggesting that you read it from cover to cover, I do think that educators should be aware if the mains points though.

In the following weeks i am going to ‘unpack’ each of these and discuss the implications that they have for increasing a young person’s financial literacy.