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The Marshmallow Test - Why Kids Who Delay Gratification Are Destined To Succeed (VIDEO) 

1/13/2015

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A plate of big, delicious marshmallows, just like those used in the marshmallow test.
If you were going through the marshmallow test (I'll tell you about that in a minute), could you delay gratification? Do you have any self-control? If you were a kid again, could you show any restraint if delicious marshmallows were placed in front of you? 

Finance for children can be a tricky topic. Parents want to find ways to teach their kids about money and saving, but money may have been taboo in their own home. Forget all the silly games you may read or hear about – here is THE most important thing you can teach your kids about money.

DELAYED GRATIFICATION.

If you can raise children with the ability to delay gratification, you have succeeded as a parent. But before I get to the money part, let’s talk about marshmallows.

In the 1960s, Walter Mischel of Stanford conducted significant psychological studies with children, revealing what is now believed to be the most important characteristic for overall life success. The psychology behind self-control and the delay of gratification is truly remarkable. 

A child was brought into a private room and placed in front of a marshmallow. The researcher told the kid that he was leaving the room and if the marshmallow wasn’t eaten when he came back, the reward would be another marshmallow. If the child decided to eat the first marshmallow, there’d be no second. Then the researcher left, and the kids writhed and jittered in their seats, trying hard to restrain themselves. Only a few kids managed to wait the entire time. Below is a YouTube video demonstrating the experiment. 

If you want to learn more about the experiment, there is a book about it. It's called The Marshmallow Test: Why Self-Control is the Engine of Success



Here’s the kicker – as the years went on, the researchers did longitudinal research and observed each child’s progress in different areas of life. They found that children who delayed gratification had:

  • Higher SAT scores 
  • Better responses to stress
  • Lower levels of drug abuse 
  • Lower probability of obesity

This is why it’s incredibly important to let your kids understand that a “no” today means a better “yes” tomorrow. Be open with your kids about the cost of things. Parents have a hard time telling their children “no” in the first place. Make it a little easier by reminding them of something the “no” will lead to in the future. If a child asks for an expensive new toy, explain to him that you’re saving money for a vacation in a few months. In order to have fun on this vacation, you’ll have to give up a few things now.

Likewise, it is important for children to understand that they may have to wait and buy something they want. With access to easy credit, payday loans and overdraft, delayed gratification seems like a thing of the past. Americans had a negative savings rate not too long ago (I’m not too sure if they still do now, I couldn’t find a source) and unnecessary debt funnels wealth away from its owners. Let your children know that if they really want something, they should wait and save to buy it. This will create a foundation for your child, letting him understand that it’s unwise to pay high interest on unnecessary debt later in life. If you child really wants to buy something, make it goal for them to save towards it (by using their allowance of course!).   

As your child gets older, he should understand he should use a credit card only if he can pay the full balance each month. Here at Personal Finance Genius, we understand that emergencies occur and some debt must be leveraged. However, credit cards can also be a wonderful tool for building credit and getting some rewards/airline miles. On the other hand, if everyday items are charged, the credit line is lessened, should an emergency ever occur. This is a personal choice that every family should make regarding credit. Let your child know that a poor credit history will make it difficult to buy a car, a home or even a job, if potential employers check credit.

If you can successfully delay gratification, congratulate yourself. You are not like many other Americans. Like many other problems, it can be prevented at home. If you truly love your children you will take control and provide them with this essential life skill.
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Education and Income Inequality: How Wealthier Kids Get Better Test Scores

1/6/2015

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Chart demonstrating education and income inequality
Education and income inequality is a huge problem in America. Income and education, with regards to SAT scores, are highly correlated.

The above graph illustrates this phenomenon. Those taking the SAT with 20-40K parental income score around 1400. Those with 200K or more in parental income score over 1700. This is no one-time fluke, either – the scores increase almost linearly with income, with no dips or deviations. This means that wealthy kids are not only better suited to pay for college, but they are more likely to have the scores that make admission a breeze.

One of the most commonly held beliefs about the gap between test scores is that wealthier kids can afford to get test prep. First of all, if external help and preparation can influence an SAT score, then is it really an objective, reliable and valid measure of aptitude? Many research studies suggest that test prep has a limited effect on scores, boosting them only a few meager points. The gap between the 20K income score and the 200K income score is too big of a disparity to be explained by SAT prep books or courses.

Instead of a single-factor model, we must see the income and education inequality problem with a multi-factorial approach. Wealthier families tend to locate in areas with better schools. Parents with a higher income tend to be college educated and take great care to see their children do well on tests and get into a good college. Test scores lead to college, which leads to income… which, as we see, leads right back to SAT scores.

Education has historically been viewed as a great equalizer in America. It was education that was supposed to help underprivileged children and improve their chances for success in life. Not anymore, and the education-achievement gap is only widening. Sean F. Reardon, a Stanford University sociologist, led a study that found the gap in test scores between wealthy and poor students had grown about 40% since the 1960s.

Another variable that helps to explain the gap is that wealthier families have more resources to devote to their children. From birth, education is a vital component of an upper-middle class child’s life. The vocabulary he/she hears is more varied and richer, there are more books in the household and parents take an active interest in the child’s academic performance. All this leads to the cycle of test scores, income, repeat.

“The pattern of privileged families today is intensive cultivation” – Dr. Furstenberg, sociology professor at the University of Pennsylvania

Does the data surprise you? Did you realize the gap was this big? Leave your thoughts in the comments section below. 


While income and education, on average, go hand-in-hand, it’s surprising how much of an advantage wealthier kids actually get. Let’s start by discussing SAT scores.

The Scholastic Aptitude Test has long been a measure of how well a student is expected to perform in college. Although many arguments have been made against this one-shot, G-loaded test, it remains in use as the most powerful predictor (supposedly) of academic performance. The bad news is that familial income and standardized test scores are highly correlated. 


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20 Habits of The Rich: Daily Success Habits of Wealthy Individuals (Infographic)

1/3/2015

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Habits of the rich - infographic explaining the daily success habits of wealthy individuals
What are the habits of the rich? Are there specific habits that wealthy people have developed to help them get rich?

I recently got the chance to re-read Thomas Corley’s book, Rich Habits – The Daily Success Habits of Wealthy Individuals and it was interesting to see how rich people cultivate certain habits that drive their success. This "rich habits" book really opened my mind to the daily success habits of wealthy individuals. 

I wanted to know more, so I did some digging and found out that Corley spent over 5 years studying the differences between the rich and poor, including how they live, work, eat, exercise and so on. For the purposes of his study, “rich” is defined as having at least $160K in yearly income and $3.2 million in assets. “Poor” is defined as $30K in yearly income with at least $5K in assets. He found that rich people have different habits than poor people. 

Here’s what he found (via Corley’s richhabitsinstitute.com and Dave Ramsey):



  1. 70% of wealthy eat less than 300 junk food calories per day. 97% of poor people eat more than 300 junk food calories per day. 23% of wealthy gamble. 52% of poor people gamble.
  2. 80% of wealthy are focused on accomplishing some single goal. Only 12% of the poor do this.
  3. 76% of wealthy exercise aerobically four days a week. 23% of poor do this.
  4. 63% of wealthy listen to audio books during commute to work vs. 5% of poor people.
  5. 81% of wealthy maintain a to-do list vs. 19% of poor.
  6. 63% of wealthy parents make their children read two or more non-fiction books a month vs. 3% of poor.
  7. 70% of wealthy parents make their children volunteer 10 hours or more a month vs. 3% of poor.
  8. 80% of wealthy make Happy Birthday calls vs. 11% of poor.
  9. 67% of wealthy write down their goals vs. 17% of poor.
  10. 88% of wealthy read 30 minutes or more each day for education or career reasons vs. 2% of poor.
  11. 6% of wealthy say what’s on their mind vs. 69% of poor.
  12. 79% of wealthy network five hours or more each month vs. 16% of poor.
  13. 67% of wealthy watch one hour or less of TV every day vs. 23% of poor.
  14. 6% of wealthy watch reality TV vs. 78% of poor.
  15. 44% of wealthy wake up three hours before work starts vs. 3% of poor.
  16. 74% of wealthy teach good daily success habits to their children vs. 1% of poor.
  17. 84% of wealthy believe good habits create opportunity luck vs. 4% of poor.
  18. 76% of wealthy believe bad habits create detrimental luck vs. 9% of poor.
  19. 86% of wealthy believe in lifelong educational self-improvement vs. 5% of poor.
  20. 86% of wealthy love to read vs. 26% of poor.

Pretty interesting stuff – how do you stack up with these daily habits? 


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