Delayed Gratification, What is it? And Why Should We Teach it to Our Children?

I have long thought that if there is one trait I want to help my children develop when it comes to finances, it is the ability and desire to Delay Gratification.

Of course delayed gratification applies to many other things.

Simply put, delayed gratification is the ability to resist an immediate desire, for something better in the future.
Delaying Gratification requires:
Sacrifice.
Self Control.
Persistence.
Patience.
Selflessness.
Planning.
Foresight.


Examples of Delayed Gratification:

Saving/Investing Money (resisting spending money now in order to have/spend that money in the future)

Dieting (resisting food now for weight loss in the future)

Studying (resisting playing now in order to have better grades/opportunities in the future)

I've never been wealthy so I guess in many ways I don't know much about building wealth. However, what I do know what building wealth looks like on our income, our family lives quite comfortably simply because we have delayed gratification.
In our marriage we've chosen inexpensive clothing, meals made from scratch, cheap entertainment, forgone vacations, older vehicles, small/old apartments, in order to pay cash for vehicles, put 20% down on our house, and invest for retirement.



But, for me it started before that.
I've shared my Disneyland necklace story here before.
Over the years I saved for many other things and made choices I was happy with, as well as choices I've deeply regretted.

This story is bigger than that.
In my family we were always expected to pay tithing and put a percentage of our income in savings. We had both short-term and long term savings as well as immediate spending.
I was always pretty good at short-term savings, I would decide on something I wanted and work diligently toward that goal.
But my long-term savings is where I really learned the benefit of saving.

Days after graduating from High School, I moved to St. George, UT to work for the summer and attend Dixie State College in the fall.
My parents and I had an agreement that they would pay for tuition, but I was responsible for books and living expenses. 

I had a job lined up, but when I walked the mile to work that first morning I found an empty office. I called my supervisor and found out that the company had moved to a location about fifteen minutes away, driving time, but the problem was I didn't have a car. It would take me over an hour to walk there in the St. George summer heat. Other events transpired and I decided that I needed to find another source of employment. It took me a month to find a job. I was grateful that my parents had taught me to save, I used up a significant amount of my savings, which I was planning on using to buy books and pay rent for fall semester, but I was ok. I was so grateful that I'd chosen to save a percentage of my high school income, even when that meant turning down activities, opting for the dollar menu, skipping movies, or just the concession stand, etc.
Once I found a job I became determined to have an emergency fund. The few times since then that I haven't had one left me worried, and determined to find a way to replace it.



So how do we teach kids to employ delayed gratification in their financial decisions?

I wish there was a straightforward answer. There isn't, but here are some ideas:

* Buy them less, and provide a way for them to buy things for themselves, through earnings or allowance (you can read my post on allowance here)
* Encourage children to save toward something big. 

    Big is relative to their financial means; for my 3yo who has $0.45/week after tithing/savings, big is a $5 airplane

* Allow them to make mistakes and then DON'T RESCUE THEM.

* Discuss their regrets while withholding criticism.

* Encourage them to set goals.
* Verbally reward them for progress.

* Encourage open-ended saving.
    Saving for things they will want in the future without a particular goal in mind
* Say No.
     Or:   It's not in the budget.   or  Is that how you want to spend your money?   or   That's not something I'm choosing to spend my money on today.   
* Get kids involved in the family budget. Certain categories like clothing and entertainment, even gas or groceries can (and possibly should?) be influenced by older children. 

     Let them figure out how to pay for the vacation or activity they're drooling over
* Put them in charge of planning, shopping, and cooking a family meal, give them a reasonable budget, and let them keep the extra, or go out for ice cream with the remainder

* Match their savings, with a cap 

     ie for every dollar you save toward your first car we'll match $.50 up to $3k, or for every dollar you deposit in your college fund, we'll match $2 up to $15k, whatever works for your family budget.
* Teach them ways to have fun without spending money 

* Give them money to buy their school clothes and let them budget and figure out their priorities, after reminding them that they'll want socks and underwear ;)
     With some kids you might have to stipulate that ALL of the money must get spent on clothes, with others who are accustomed to and enjoy having a nice wardrobe, they may have the opportunity to keep the remainder if they come in under budget
* Let your kids see you practice delayed gratification
     Talk about what you're saving to purchase. Make comments such as I'm cutting this expense, or I'm not buying that so I can put the money toward _________. 
* Don't just wait for things to go on sale, let them know that's what you're doing.
* Share how you feel when you finally pay off your credit card, car, or house.
     Let them know what a blessing/relief it is to not have debt. Talk about what you can use that money for instead of that payment.




If you're interested in reading more about the benefits of delayed gratification interesting articles can be found here, here, and here.

Cereal vs. Space Planes

Economics for a Three-Year-Old

Teaching Kids About Opportunity Cost

Today, while grocery shopping, I had the wonderful opportunity to teach my 3 year-old about the economic principle of opportunity cost (every dollar spent is a dollar that can't be spent on something else).

Dictionary.com defines Opportunity Cost as:

the money or other benefits lost when pursuing a particular course of action instead of a mutually-exclusive alternative

Or the British Definition:

the benefit that could have been gained from an alternative use of the same resource.

Basically, if we spend money on one thing, we can not spend that money on something else, the cost is the benefit of making the alternate choice.

A few examples:

If I buy a cheeseburger for lunch, I cannot use that same money to buy ice cream for dessert.

The cost of the cheeseburger is losing the opportunity to enjoy the calming sugar rush I get when I eat ice cream.

If I get a loan for a car, the money paid in interest cannot be used to go on a vacation.

The Opportunity cost of financing the car is not being able to use that money to relax, play and see something new.

Our lesson:

As I was walking down the cereal aisle, unbeknownst to me a little hand stealthily reached out and grabbed a box of cereal, a few minutes and an aisle later, I reached to place something in the cart and glimpsed something that I didn't put there, a box of Reeses' Puffs. 

My initial reaction was to remind him that he can't just grab things and put them in the cart (something he hasn't tried to do in months), but as I was scrambling for an appropriate consequence, I paused and realized there was a much better way to handle this.

Yesterday when I was giving him his allowance he told me he wanted to use his money to buy space airplanes, Echo and Bravo from the movie Planes, which cost about $6-8.

I bent down so I was looking him right in the eye and asked him if he wanted to use his money to buy that box of cereal, he said Yes.

I then asked if he wanted to buy a new airplane, he got really excited, "Yes, a space airplane......."

Next I explained that the box of cereal cost the same amount as a new airplane (not quite accurate, but reasonably close), and asked if he would rather use his money for cereal or an airplane, he firmly replied "A space airplane!" so we walked back to the cereal aisle and he happily put the box back.

In that instant he made the decision that the benefit of a new airplane outweighed the cost of not getting a box of Reeses' Puffs.

It doesn't mean cereal would have been a bad decision, it means he's choosing something he wants more.

He doesn't know it but he just had a lesson in Opportunity Cost, Delayed Gratification, and Budgeting.

Helping children understand the principle of opportunity cost while they are young, can help them make decisions that align with their values and goals when they are older and the decisions carry more weight.

BUT.... 

It seems overwhelming, even to someone who's spent a good amount of time studying this very concept...

I'm going to break it down into 3 steps:

1. Stop (or cut back on) buying things for your kids and instead give them the money to buy those things themselves.

Whether they do chores for they money or you give them an allowance (read my thoughts on Allowance here), kids need to have their own money so they can have opportunity to make decisions with it.

When they want something at a store, event, etc. the empowering response sounds something like:

Did you bring your money?

Do you have enough money?

Is that what you want to spend your money on?

2. Guide them, but let them make their own choices.

You might suggest:

That costs $xx.xx if you wait you could get it for less at _____.

You might want to wait and look at some other things before you decide.

Weren't you saving money for _____? Would you rather have this or _____?

That's XX weeks worth of allowance or XX jobs, is it worth it?

If my 3 year-old had decided to buy cereal, I would have let him.

3. Allow them to Make Mistakes

Nothing helps kids learn financial responsibility better than a toy that breaks after 10 minutes, 

Or a drink that disappears while a brother is still enjoying a toy, 

Or watching a sister enjoy a whole new wardrobe for the price of your one pair of designer jeans,

Or watching your sibling go to a movie on Friday night AND Ice Skating on Saturday night, when you only get to go to the movie because you spent $10 on concessions.

It doesn't mean that any of the decisions were "BAD", though they may be "SAD", OR maybe that buttery popcorn, or those jeans that look great and fit perfectly were worth it.

It's not about making decisions that please mom and dad, it's about teaching children how to make decisions that align with their values and goals. 

It's about making sure that the lost opportunity is a price they're willing to pay. 

If you found this post interesting, you might also enjoy 

Six Things My Parents Did Right When Teaching Me About Money

and

Allowance: Money without Work

I also highly recommend the book Piggybanking for more ideas on how to teach kids about money, it's a quick easy read and quite entertaining.

Check Out My Article on FamilyShare.com

I keep forgetting to post this but it's exciting news for me.
A couple of weeks ago a slightly revised version of my blog post Six Things My Parents Did Right When Teaching Me About Money was republished in the Money section of familyshare.com

I've been really excited to see how well it was received, 4,963 views  and  3,072 shares to date.
I thought about blogging for a LONG time before I actually started. I was really worried about how my content would be received, I didn't want to just waste my time. I have received a lot of great feedback and I know I've been able to help some people work on getting their finances in order which is what this project is all about. This article's success is one more confirmation that I'm doing something worth doing. That's a great feeling.
Go check out my article here, share if you'd like and spend a moment looking around, there are some other really great articles on the site. I'd love to hear what your favorites are, leave a comment below so I know which ones to check out.

Saving Money: Birthday Edition (Part Three)

Spend Less, Give More

The gift that keeps on giving

As parents, it can be very tempting to want to give children lots of STUFF. Stuff they need, stuff they want, stuff you want, stuff they don't even know they want. Fulfilling my 3 year-old's wish list this year, would have cost roughly $1,000,000. 

Nope, not a typo. Along with a squirt gun, toy cars, a Buzz Lightyear with wings and a laser, a golf glove, a birthday cake, and plenty of other things I don't remember. 

He also wanted a four-wheeler, a tractor, and a combine, and he didn't mean toys or power wheels. 

I purchased a few of the things that were reasonable, but less than I could have, and far less than he wanted.

He did get the "Red Combine" cake he wanted, thanks to a little spray paint:).

Most of us have financial constraints that limit what, and how much we purchase for our children. 

I'd like to suggest setting a budget of how much you can spend on your child, and then spending less than that. If possible, significantly less.

Before you draw the conclusion that it doesn't seem NICE or FAIR or GENEROUS. Hear me out.

Buy a couple of things that will make your child very happy, but stop before you hit your spending limit, and put the rest into savings for that child.

I started this when my oldest turned One. There aren't many things a one-year-old really wants or needs, but there can be many things a parent wants for their one-year-old. I decided rather than fall into that trap I would buy a few presents and then put the rest of the money I had budgeted into his UESP education fund. It continues to motivate me to shop sales and limit my overall spending, knowing that I am giving him a far more valuable gift than another toy or shirt he doesn't need. We may not be able to pay for much of our kids schooling, I don't know what our financial future will hold, but something is better than nothing.

The type of savings you choose for your child may vary based on your values, goals, abilities, and the age of your child, some people don't want to pay for college or trade school.

Other savings goals may include:

First Car

Down Payment on a Home

Mission

Wedding

Custodial IRA (if your child has earned income. This money could be used for education, retirement or a first home. If you choose to go this route discuss the pros/cons and risks thoroughly with a financial adviser.)

Remember, small amounts add up. Investing just $20 twice a year (Birthday and Christmas), for 18 years at a 6% rate of return, would yield about $1200 upon graduating from high school. Now that's a gift.

More than anything, this gift can teach them the power of sacrifice, self-control, and delayed gratification, and that's a gift that keeps on giving.

View my disclosure here.

Allowance: Money without Work

How Giving An Allowance Can Instill in Children a Willingness to Work and Serve

(Ok, it's only one SMALL aspect, but hear me out)

Should You Give Your Kids An Allowance Or Should Money Be Earned?

What Do You Think?

My son turns 3 this week, and we're starting allowance.
I'll be testing my allowance theory and sharing the successes and failures of the journey in future posts.

Yes, I believe in Allowance.
Allowance, as in money that's given, not earned.

Does this surprise you?
It surprises me.

I am a believer in hard work.
I used to think that giving kids money they didn't have to earn was simply a great way to teach them that they don't need to work.
I also feel that when kids are given things rather than working for them, they don't learn to manage money.

So, why allowance?

I also believe that there is too much emphasis on money in this world.

Money is often a source of control.

Too often, Money = Power

Too many kids (and adults) only want to work if there's money involved.

If Work = Money and Money= Power/Control, why serve?

Here's my Suggestion:

Give your children a small allowance just for being part of the family.

Not because they're good kids, not because they're hard workers, just because they need to learn how to manage money and spend appropriately.

Give them a small enough amount that they'll still want more, but give them enough money to teach them about money. 

Give them jobs that they do just because they're part of the family.

We started jobs at age two:

Taking his dishes to the sink after meals

Putting away his toys

Unloading his dishes and other plastic items from the dishwasher and putting them away

Putting his dirty clothes in his laundry basket at night.

He is learning that work is a responsibility whether it's financially profitable or not (this promotes service).

He will understand that even when he begins to make more money from an employer than he can from mom, he is still expected to contribute to the household.

He is learning that fun is great, but that work is necessary. 

I praise him instead of pay him, and he values that praise.

When kids want to earn more money then they can do more jobs

How you manage this is up to you.

You could make a list of jobs and the amount you are willing to pay for those jobs. 

They can come to you and propose a job they're willing to do and you can negotiate the pay rate.

They can present an amount they would like to earn and you can give them a list of jobs they need to do to earn that amount.

How do you motivate kids to work if they're not getting paid?

If they don't do their jobs, rather than not getting paid, they lose privileges such as playing with friends, TV time, video games, they lose toys that aren't put away, driving privileges, or whatever works for you and your child.

Interested in more about Kids and Money?
Read my post Six Things My Parents Did Right When Teaching Me About Money
I also HIGHLY recommend this book for a more in depth look at teaching kids of all ages about money, it's an easy read, well written, and has great examples.
And follow us as I share about my little golfer's money managing adventures.

Six Things My Parents Did Right When Teaching Me About Money

1.  They started young.
If I wanted something, I used my own money to buy it.
As a 3-year-old at Disneyland I purchased my first "souvenir",  a sterling silver pendant of the castle, with my own money which I had earned and saved.
As a preschool aged child I gained experience in saving up for something, and discovered the feeling of accomplishment from meeting a goal and getting something I really wanted.

{You can read my thoughts on allowance here.}

2.  They let me make mistakes
At 10 I bought a doll, a rather expensive (and well made) doll. I had saved and saved and saved. It was a big accomplishment I suppose, however, it never brought me the satisfaction I wanted. Instead of buying the same kind of doll as my friends had, the doll I really wanted, I bought something "better". It was beautiful, and higher quality, but it wasn't the same size, and because of that it wasn't easy to play with my friends and their dolls. Mine was a GIANT. I spent more money, I got something nicer, but I wasn't happy, and I'd spent a lot of money on something that made me unhappy. My parents didn't fix it. My mom let me share my disappointment, she validated me, she consoled me, but she didn't fix it.
What I learned: before making a purchase I take the time figure out what I really want and why I really want it. More is not always better, bigger is not always better, and it's better to delay a purchase than regret it.

3.  They were persistent
The stock market, oh the stock market. My dad started teaching me about the stock market at about age 12. I HATED the stock market.
My parents started a college fund for me, and EVERY time(OK maybe not every time, but it sure felt that way) the statements came my dad would make me sit down next to him and he would show me what was happening with the stocks in my account. I was confused. I was annoyed. I was positive that I wanted NOTHING to do with the stock market. I didn't even understand what stock was I didn't know why these people were paying me money (or not). I'm sure he knew I didn't understand, or care, but he was persistent.
After a few years I started to catch on, little by little. When I started taking a class in college where we learned about stocks and bonds and retirement and choosing mutual funds I was surprised at how much I knew. I was surprised that what I knew was not common knowledge. I still had a lot to learn, but my dad's persistence, with his stubborn and uninterested daughter, had given me a foundation that led to success in the class. This foundation allowed me to focus on more detailed aspects since I already knew the basics. It gave me the courage and desire to start investing for retirement.

4.  They didn't sugar coat the facts
When I wanted something that wouldn't work with their budget or priorities they told me. It wasn't dramatic, and it wasn't a secret.

5.  They expected me to have a job
There's nothing quite like having a job you don't enjoy to teach the value of a dollar. 
Every dollar painfully earned is a dollar not to be thrown away on a candy bar you didn't fully enjoy or a movie you didn't really want to see.

6.  They taught me to shop sales/clearance/second-hand
My motto: The more I save, the more I can spend.
I like to spend money, but I don't like to spend more than necessary

My favorite Pre-Loved items:
A pair of great condition designer jeans for my son at a second-hand shop for $8
A Prince Lionheart Slumber Bear (which I truly believe is a significant contributor to my 2nd child sleeping soo much better than my first) for $2. Yes, TWO dollars!
Vintage Pyrex Dishes
My Toddler's favorites:
A Little Tikes Basketball Hoop
A toddler sized football

A toddler sized putter

These finds are rare, but they make the hunt completely worth it.