How longer-term success comes from short-term sacrifices
It seems that every retail store these days is hopelessly vying for the attention of your wallet. “Up to 50% off”, “Buy 3 for 2”, “Buy 2, get 50% off your next purchase”. By 9am on a Monday morning, you’ve already received 7 emails from different marketers reminding you there will be a 15% site-wide reduction starting on their online store. That’s R900 saving off that R6000 laptop you’ve been eyeing. Do you click or delete? Do you spend or save?
Considering that South Africa has one of the worst saving rates in the world, it wouldn’t be surprising if you opted for the former. As of August 2016, the income saved in an average South African household is -0.80%. That’s a shockingly low amount. So what is saving exactly, and why are South African’s so bad at it?
Saving is simply spending less than you earn. Of course wage disparities and high costs of living are contributing factors as to why this can be difficult for many South Africans, but the workforce in China earns less than we do, and still manages to save about 30% of their income.
Studies show that there is a psychology behind saving, and it’s all about delaying gratification.
In the 1960s, a professor at the University of Stanford conducted a famous series of tests on hundreds of children aged between 3 and 5 years. It involved a researcher taking a child into a private room and offering him or her one marshmallow. The researcher then told the child that he would be leaving the room and if the child did not eat the marshmallow by the time he got back, the child would receive a second marshmallow. Some kids tried everything they could to avoid eating the marshmallow: closing their eyes with their hands or distracting themselves by jumping up and down on the chair before succumbing to temptation. Others simply snatched the treat off the table as soon as the researcher left the room. Few, however, were able to resist temptation and managed to wait until the researcher returned to receive the second marshmallow.
The researcher was gone for all of 15 minutes.
The experiment continued years later with follow-up tests on all the children in various facets of their life: examination scores, mental and emotional health, social skills, etc. The results were remarkable.
The children who had managed to wait for the second marshmallow showed a significant increase in development of all the areas they were tested for compared to their more impulsive peers. Being able to hold out for that second marshmallow proved one thing: there is a strong link between success and being able to delay gratification.
Delayed (or deferred) gratification is the ability to accept a short-term sacrifice in favour of a longer-term reward. If you opt to go out for a run now instead of watching the next episode of your favourite television series, you will benefit from being healthier in the long run. If you quit smoking now instead of lighting up to get that immediate nicotine fix, you will benefit from reducing your risk of lung cancer. If you can put away a percentage of your salary now as opposed to splurging it on that new dress in the shop window, you will benefit from opening up financial possibilities for yourself in the future.
For most people, let alone children, these are no easy feats. It takes incredible will-power, immense determination and clear motivation. More importantly, the power that the reward had in the child’s mind was stronger than the desire to enjoy the immediate gratification.
So how do these successful kids help teach us to save?
By far, the most resilient method used by the successful children was a clear motivation. Often, the reason why we battle to save is because we simply don’t know what we’re saving for. A holiday? My child’s education? My retirement? The acclaimed author Stephen Covey writes in his book,”7 Habits of Highly Effective People”, that we should begin with the end in mind. He references Viktor Frankl, a holocaust survivor, who used the power of visualising his motivation to make it out of Auschwitz alive.
Once the motivation is clear and concise and you’ve decided on how much to save, the next step is to put your saving method into practice. Unit trusts are good savings vehicles if you are an impulsive shopper. They force you to have an opportunity to think before swiping, because the money is not immediately accessible (it takes a day to disinvest). Coupled with compounding interest, you will be able to witness, month by month, your reward growing.
Learning how to delay gratification can be a mammoth task, but just like saving a small amount of money every month, every day you forego the now for a better later, you’ll be reaping the benefits of personal growth and financial flexibility.