Part of financial literacy is knowing how money works, which is common instruction in schools that offer a personal finance class. But to be truly capable, and enjoy better outcomes, adults must also understand the social and emotional aspects of money. That constitutes The Missing Half of financial education. In this series, Right About Money contributor and award-winning financial literacy teacher Brian Page examines how to nurture behavioral skills that lead kids to better financial outcomes in adulthood.
Walter Mischel famously explored the value of delayed gratification in the early 1960s at Stanford University’s Bing Nursery School. Children were given the choice between a marshmallow they could eat now and waiting 20 minutes to receive a second marshmallow. Mischel found that those who waited became more successful in life.
Delayed gratification is an emotional skill, not a math or technical skill. Yet it underlies key financial concepts that lead to better money outcomes. Putting money in your 401(k) plan rather than buying a new car, or even a new pair of jeans is an example. So is putting money into a short-term savings account and using it to buy a new iPhone later, rather buying the iPhone now on plastic.
Nurturing such emotional skills is the latest push in financial education, and leaders in this movement would do well to examine the core competencies described by the Collaborative for Academic, Social and Emotional Learning, which is spearheading such learning on a broad scale.
When my daughter was five, I gave her a version of the marshmallow test, using Girl Scout cookies. She instinctively employed one of the Collaborative’s coping strategies: abstraction. She pretended the cookie was a spaceship and that made it easier to wait. When time was up, and she passed the test, she asked if she could do it again for yet another cookie. I smiled, knowing her choice suggests future success managing her money.
Building on Mischel’s work, researchers at the University of Rochester wanted to know if abstraction and other coping strategies could be learned. They did their own version of the marshmallow test—only one group of children was denied the extra treat they had earned by waiting. Next time they were far less likely to make the same decision. They had “learned” it was pointless.
The conclusion: coping strategies—social and emotional skills—may be natural in some people but can be learned by others. That’s an encouraging finding. I use chat stations to teach these coping strategies, which may offset a child’s natural instinct to grab the marshmallow:
Avoidance When researchers covered the marshmallow children didn’t need a strategy. Out of sight, out of mind.
Positive Distraction Children waited longer when told to “think fun thoughts” about something else.
Abstraction Children waited longer when instructed to think of the treat in an abstract way, say, as a picture or a cloud.
Self-directed speech Some children repeated phrases like “I have to wait, so I can get two marshmallows.” This self-administered reminder worked for many.
A child’s social and emotional skills must be fostered to help them make better decisions in the future about all things—but especially about money. Teachers and parents should create teachable moments, and children should be praised for emotional growth. Such efforts reap rewards far greater than acing a standardized test.