. . . because much of the content relates both to Washington, D.C., and "outside the beltway" -- the heartland, specifically Iowa -- and because after going from Iowa to Washington via Texas and California I subsequently returned, From DC 2 Iowa.
A fellow named Grant Sabatier has revealed his technique for turning millennials into millionaires by the time they reach 30.
There's a lot of wisdom in his story. But it reminds me of another story.
A concert audience member, blown away by the pianist's skill, walked up to the stage as the other audience members were leaving. She told the performer how much she'd enjoyed the concert, and then added, "I'd give anything to be able to play the piano like you do." Expecting a reply of "thank you," or "ah, shucks, ma'am," what she got was, "Oh, no you wouldn't." Startled, she protested, "Oh, yes I would. Why do you say that?" "Because," he replied, "you wouldn't be willing to practice six hours a day for ten years."
In other words, while our young millionaire has his math right -- any teenager willing to do what he says will have a shot at $1,000,000 by his or her 30th birthday -- few if any would be willing to follow the steps and live the life required to achieve that wealth.
Mr. Sabatier's recommended life, a kind of ultimate deferred gratification, reminds me of another story by way of explanation.
A farmer was leaning on his fence, looking out over his pasture, when his neighbor came over to chat. Noticing a mule lying on his side in the middle of the pasture, the neighbor asked,"How's your mule doing?" "Not so good," replied the farmer. "I was training him to live on dew; almost succeeded when he uped and died."
Sabatier doesn't require that his followers live on dew, but his requirements are only marginally more generous. He would probably agree with the thrust of the Saturday Night Live sketch in which a young couple with financial problems (played by Steve Martin and Amy Poehler) are urged, "Don't buy stuff."
The basic formula is that you hold more than one job, one of which you grow into a business, cut expenses to the bone, and invest a far larger share of your income than most would choose to do.
His investment strategies seem sound enough, and similar to what many investment advisers have to say: Buy index funds with the lowest percentage fees (rather than individual stocks or managed funds); on a regular schedule ("dollar cost averaging"); diversifying among max cap equities, small cap growth, foreign firms, real estate, and bonds (taxable and tax-free). Of course, that's the easy part -- once you have the money to invest.
I've given teenagers similar advice with a couple illustrations, both leading to the million dollars (in my illustrations, by age 65). One involves a 15-year-old smoker who gives up the habit and invests what would otherwise have been burned up. As I put it to a one-or-two-pack-a-day teen, "Smoking is not a $10-to-$15-a-day habit, it's a $1-to-$2-million-dollar habit."
The other illustrates the contrast between paying cash and buying on credit. Two teens want cars. One buys on credit and makes monthly payments for cars all his life. The other saves first, pays cash, drives the car while putting aside and investing monthly payments for the next one, repeating the process for all of his life. When then reach 65 they both still have cars, but the one who pays cash will also have $1-million in investments.
Or, as I used to tell law students (albeit before graduation carried with it $100,000 or more in debt), "If instead of buying a Mercedes or BMW you continue to live during the next ten years (as a lawyer) the way you did during the last ten years (as a student) you could retire at 35. You'll find your 'lifestyle' living on 90% of what you earn not noticeably different from living on 110% of what you earn."
It's all about the capacity for deferred gratification, illustrated by the marshmallow experiment. Jacoba Urist, "What the Marshmallow Test Really Teaches About Self-Control,"The Atlantic, September 24, 2014. I was born during the Great Depression. Deferred gratification was not a goal, it was a reality born of lack of money. There was no alternative, if I really wanted a bicycle, to getting a paper route first, saving my money, and then paying cash for it. One saying of the time was, "Use it up, wear it out, make it do, or do without."
But there is an alternative to poverty as the driving force.
If one thinks of doing without as painful deprivation, it is unlikely any teen who uses all their money to "buy stuff," one whose very identity is dependent upon physical possessions, will have any significant investments by the time they are 30, let alone $1-million dollars.
Yes, it's hard to alter one's behavior if one cannot alter one's thinking. But it's possible to alter one's thinking. I've written a book about it: Test Pattern for Living (available from Amazon).
The financial rewards can be enormous. But, like the lady who wished she could play the piano like that virtuoso, whether you are willing "to give anything" to achieve them is up to you.
It turns out that four-year-olds who are willing to postpone eating one marshmallow now in exchange for two in 15 minutes will later score 200 points higher on their ACT test.
I can relate. Not to the ACT score, but to the difficulty in postponing marshmallow consumption. In my case it was the choice to burn, rather than roast, marshmallows. The increased marshmallow consumption the speedy burning made possible more than made up for the mere aesthetics of a marshmallow with a golden brown hue.
It may be that the experiments I'm about to describe may tell us even more about our current economic meltdown than marshmallow meltdown.
Tom Ashbrook, who hosts one of the best talk shows on American radio ("On Point"), addressed the subject a couple days ago [May 13]. "Our Delayed Gratification Era," On Point with Tom Ashcroft, WBUR-FM 90.9 mHz, Boston, May 13, 2009.
As his Web site described his guests, "Science writer Jonah Lehrer is a contributing editor at Wired, and author of How We Decide and Proust Was a Neuroscientist. His new piece, in this week’s New Yorker, is “Don’t! The secret of self-control.” Psychologist Walter Mischel is a professor at Columbia University, and author of Personality and Assessment. He pioneered the “marshmallow experiments” in the 1960’s, which studied delayed gratification and self-control in children. Economic historian Richard Sylla is a professor at New York University’s Stern School of Business, and author of The American Capital Market: 1846-1914 and A History of Interest Rates.”
Experiments run by Stanford psychologists in the 1960s tested four-year-olds' capacity for deferred gratification. The kids were offered a marshmallow with a promise of two marshmallows if they could wait (for what turned out to be about 15 minutes). They were re-visited years later in the psychologists' effort to discover what might correlate with a capacity for deferred gratification.
Once [then Stanford, now Columbia, psychology Professor Walter] Mischel began analyzing the results, he noticed that low delayers, the children who rang the bell quickly, seemed more likely to have behavioral problems, both in school and at home. They got lower S.A.T. scores. They struggled in stressful situations, often had trouble paying attention, and found it difficult to maintain friendships. The child who could wait fifteen minutes had an S.A.T. score that was, on average, two hundred and ten points higher than that of the kid who could wait only thirty seconds. . . .
According to Mischel, this view of will power also helps explain why the marshmallow task is such a powerfully predictive test. “If you can deal with hot emotions [e.g., resisting a desire for something set on the table before you], then you can study for the S.A.T. instead of watching television,” Mischel says. “And you can save more money for retirement. It’s not just about marshmallows.” , , ,
One of her [University of Pennsylvania psychology Assistant Professor Angela Lee Duckworth] main research projects looked at the relationship between self-control and grade-point average. She found that the ability to delay gratification—eighth graders were given a choice between a dollar right away or two dollars the following week—was a far better predictor of academic performance than I.Q. She said that her study shows that “intelligence is really important, but it’s still not as important as self-control.”
At a minimum Duckworth's findings suggest those of us in higher education might take another look at our admission standards! But I digress.
The "On Point" guests' opinions tended to square with my own impression: that there has been a real shift in Americans' capacity for deferred gratification, regardless of age.
Most of us are overweight, and a significant percentage are designated "obese." That weight gain is a function of many things. But isn't instant gratification -- the drive to eat both of those marshmallows, or an entire box of cookies or bag of chips, and to do it now -- at least a part of the problem?
Debt, debt, debt. A federal debt of $10-12 trillion -- with perhaps $70 trillion in future, unfunded obligations. Fighting wars for which no one is drafted and for which no one pays increased taxes -- borrowing the money from the Chinese. And then borrowing more money to pay the interest on the last money we borrowed (and cover the lost revenue from tax breaks for the rich). Businesses borrow their way to bankruptcy -- and banks encourage them to do it. And credit cards! "According to the White House, total credit card debt has reached $963 billion, a 25% jump over the last 10 years. The average amount of credit card debt among families holding a balance was $7,300 in 2007." Peter Nicholas, "Obama asks Congress for credit card reform bill; . . . cautions consumers against accumulating debt,"Los Angeles Times, May 14, 2009.
The problem is not just with "the politicians" or "the bankers." It is within virtually all of us -- and the economy we have built on the back of "consumer spending;" an economy in which we not only don't regularly contribute to a savings plan but have "negative savings" as we live off of the equity in our homes, and the balances on our multiple credit cards. It's the individual's equivalent of the example set by our federal government -- and encouraged by the manipulative marketing and advertising that sustains our mass media and entertainment industries, and prompts a U.S. president to advise his citizens that the most appropriate response to 9/11 is to "go shopping."
I recently had a research assistant who was going to graduate from law school with an obligation to pay off $150,000 in undergraduate and law school student loans.
When I was in school, so far as I knew loans hadn't yet been invented. I saved for months until I finally had the $80 ultimately spent on an ancient Model A Ford. Before that I simply walked everywhere. Managing the apartment house where I lived, plus two part-time jobs (plus, admittedly, tuition rates designed to educate, rather than merely bilk, the student population) was how I paid bills.
Earlier in life, when I was a young boy, for starters no one seemed to have the income, even adjusted for inflation -- let alone the willingness or ability to incur debt -- that many appeared to have before the current collapse. As children we often heard the adage, "Use it up, wear it out, make it do, or do without." One small bottle of "soda pop," as we called it, cost a nickle and was a special treat perhaps once or twice a month. It wasn't something consumed by the liter on a daily basis.
Before you were permitted to buy anything you had to first earn the money, something that depending on the item could take months. That pretty much eliminated "shopping" as a leisure time activity with its incentive to impulse buying.
It was the application of what seemed at the time both inevitable and common sense: "if you don't have the cash you don't 'buy stuff.'"
By 2006 this philosophy was considered so bizarre as to be fodder for a Steve Martin "Saturday Night Live" sketch I embedded in an earlier blog entry. Nicholas Johnson,"Don't Buy Stuff; The Sure-Fire Solution to Economic Pain," March 6, 2009 (with links to 39 "Related Blog Entries on Global Economy and Bailouts").
[Credit: "Don't Buy Stuff: The sure-fire way to get out of debt," NBC Saturday Night Live, Season 31, Episode 12, aired February 4, 2006, available from hulu.com.]
"You Get What You Measure"
It may help to provide an incentive for deferred gratification to do a little benefit-cost analysis regarding what our impulses are costing us.
In addition to the simple advice "don't buy stuff" there's a related technique that amounts to a practical application of general semantics: "you get what you measure." What it means is that if you really want to increase, or decrease, anything in your life (or your business, or your university) you need to measure it. Measuring focuses your attention on what formerly lacked mindfulness.
Measurement is the language of science, and it's a language we can use in our daily lives. Some recipes call for a "scoop" of this, a "dollop" of that, and a "pinch" of something else. Scientists deal with liters and milligrams.
o Some dieters aim for "smaller portions." That's helpful, but not as productive as knowing that 3500 calories into the mouth will produce one additional pound of body weight (and 3500 calories of expended energy will consume a pound of body fat) -- and then "counting calories."
o Some drivers say their car gets "pretty good mileage." How do they know? Well, they filled the tank before they left and they still have "about a half-tank" left. OK; that's better than paying no attention at all. But writing down the odometer reading, and the precise number of gallons, when buying gas and then calculating the actual miles per gallon will detect possible problems (or gains) faster and more precisely. Tire pressure has a big impact on gas mileage. Looking at the tires to see if any seem to be going flat is OK. But regularly measuring the pressure in each tire with a pressure gauge will be more effective.
And what is the application of all this to our personal (and national) debt?
I keep receipts, whether for a cash or a debit card payment, and enter them into a computerized money tracker. As I sometimes explain to clerks, "It may not make me any richer, but at least I know why not."
In fact, knowing what you're spending does tend to make you a little richer -- especially if you'll do a little additional math -- because it deprives you of the option of apathy and ignorance.
To help educate some teenagers about the cost of debt I once ran the numbers on two imaginary young drivers. One saves her money for 3-5 years and buys a car, after which she immediately starts saving again for the next cash purchase of a future replacement vehicle. A boy borrows the money, buys the first car, now, and starts paying off the loan. Three to five years later he does the same. Both continue their practice for 50 years. The difference? The woman went without a car for 3 years during her teens, but has otherwise had the same access to transportation as the man. The other difference? The man has spent something between $1 and 2 million dollars more for his cars than she spent for hers -- leaving her, if she invested that difference over the years, a nice additional retirement fund.
An unrecorded, un-reflected-upon daily purchase of cigarettes, designer coffee, or similar purchase -- compared with a regular savings investment of a comparable amount of money -- can also mount up to what might otherwise have been a $1-to-2 million retirement fund. You may very well decide you really enjoy the coffee and want to have it anyway. That's OK. Just know that what it's costing you is not just $3.00 (today) but $1-2 million (over a lifetime).
That knowledge may not totally solve the impulse buying, instant gratification problem, but it sure helps.
Willpower Can be Taught
Lehrer reports scientists find there are mental tricks for building willpower,
such as showing kindergartners a video of a child successfully distracting herself during the marshmallow task. The scientists have some encouraging preliminary results—after just a few sessions, students show significant improvements in the ability to deal with hot emotional states . . ..
He [Professor Walter Mischel] knows that it’s not enough just to teach kids mental tricks—the real challenge is turning those tricks into habits, and that requires years of diligent practice. “This is where your parents are important,” Mischel says. “Have they established rituals that force you to delay on a daily basis? Do they encourage you to wait? And do they make waiting worthwhile?” . . . [N]ot snacking before dinner, or saving up your allowance, or holding out until Christmas morning—are really sly exercises in cognitive training . . .. “We should give marshmallows to every kindergartner,” he says. “We should say, ‘You see this marshmallow? You don’t have to eat it. You can wait. Here’s how.’”
Well, there you have it. The solution to our personal and national debt problems. Willpower; skillful deferred gratification -- coupled with an awareness that "you get what you measure."
And to think we could have been doing it all along with just a couple of marshmallows!
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Related Blog Entries on Global Economy and Bailouts
* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself. -- Nicholas Johnson
