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Credit Habits and the Marshmallow Factor

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By Eva Norlyk Smith, Ph.D.
July 8, 2011

Ever wonder how your preschooler will fare when he or she grows up? To get a hint of whether he or she will successful and affluent or end up with financial problems and bad credit, try the marshmallow test.

Put a marshmallow on a plate in front of your child and promise him (or her) one more, if he can wait until you come back into the room. Then stay away for eons in child time, say, ten minutes.

Whether or not that lonely marshmallow is left on the plate when you return says a surprising amount about the trajectory of your child’s future, according to researchers. The marshmallow experiment is an exercise in self-control, and self-control predicts more about how well your child will fare in life than both intelligence and socioeconomic status.

The original marshmallow test was part of a study of 600 preschoolers at Stanford University in 1972, which found that the one-third of preschoolers who resisted the marshmallow temptation had higher SAT scores as teens. However, according to a recent international study headed up by Duke researchers Avshalom Caspi and Terrie Moffitt, a child’s degree of self-control forecasts a lot more than future academic performance.

Following 1,000 children in New Zealand from birth to age 32, researchers found that children with low levels of self-control at the age of 10 had poor savings habits as adults, and they were less likely to own a home. They were also far more likely to run into problems with late or missed credit card payments and have bad credit scores. As adults, this group was also more likely to live from paycheck to paycheck, have no retirement plan and had greater rates of bankruptcy.

Also, the kids with lower self-control were also more likely to have health problems, be dependent on alcohol or drugs, be single parents and more likely to have a criminal record. Self-control was a stronger predictor of adult success than the typical indicators: intelligence and socioeconomic class.

“Self-control is clearly more important than the socioeconomic status of one’s family, the amount of money that one had growing up,” said researcher Terrie Moffitt in an interview with NPR. “It’s more important than school grades, academic achievement, and it’s more important than scores on intelligence tests.”

Self control = financial success?
It’s obvious why intelligence and academic achievement would be linked to financial success, but why self-control? Well, if you think about it, most all the things that are good for us require some degree of self-control. Saving money is good for the future, but it really sucks when you’re looking to upgrade to that sexy-looking iPad 2. Eating healthy foods and exercising is great for your health down the road, but it sure doesn’t hold a candle to camping out in the couch with a triple-scoop cherry-topped hot-fudge sundae.

Which brings us to the question: Can self-control be taught? Yes, say the researchers, and it’s a critical skill to develop in children. In the study, those children whose self-control improved during the three decades the researchers followed them fared better as adults than their initial childhood scores would have predicted.

Developing greater self-control as an adult
There are lots of techniques for teaching self-control to children. But what about adults? Strangely, there is surprisingly little about how to cultivate more self-control as an adult, presumably because we’re supposed to be there already.

But don’t despair. The act of managing your finances presents plenty of opportunities for developing greater self-control.

“To effectively manage your money, you need to be diligent about a great number of things including spending, saving and the use of credit,” says Kim McGrigg, community and media relations manager at Money Management International, in an email. “It takes a level of self control just to have a credit card. In theory, everyone could run out on the first day their account opens and charge up to the limit. But most of us acknowledge that this short-term action would have undesirable long-term consequences.”

Sandra Hanna, co-author of “The Smart Cookies’ Guide to Making More Money and Getting Out of Debt,” notes that just saving money to buy something you can’t readily afford is an exercise in self-control. If you find that challenging (and who doesn’t?), Hanna recommends using little tricks to help you develop better savings and money management skills.

“We often suggest creating a vision board — that is, a visual representation of the things you are saving for and that are important to you in your life,” says Hanna. “Otherwise it’s too easy to get tempted and make those impulse purchases.”

Tools can help boost self-control
Hanna also recommends making use of the many great tools provided by modern technology to help track finances, be it bookkeeping software or online personal finance sites like Mint.com, which automate the process of keeping track of expenses and savings.

“We all check Facebook every day, so why not add a personal finance site?” asks Hanna. Once you get past the hurdle of getting it all set up, you’ll see your savings start to grow. And then it becomes a game to see how much you can save.”

The earlier you start building the right habits, the better, says Hanna. It’s about setting little goals, and then let them grow into a habit, and then finally, something you want to do. Expect it to take about three months before your new routine becomes a habit, so initially, you may have to force yourself to follow through. In the process, however, you might just find that you’re not just avoiding silly credit mistakes and improving your finances, you’re empowering yourself with greater self-control and life skills as well.