What is an Investment?

I had an interesting conversation with my 4 year old daughter this morning.

Me: We usually wash your hair today, but you are going to swimming class after that anyways, so you will wash your hair anyways after that. Washing your hair now is pretty low RoI.

Her: What is RoI?

Me: Return on Investment.

Her: What is investment?

How do you explain investment to a 4 year old?

We have spoken a lot about delayed gratification. And how kids who exhibit delayed gratification are much more successful. She sort-of gets that concept.

Is delayed gratification the same as investment? Not quite, but perhaps they are related.

An investment is something you do today so you can get something nicer later. Often its something you do not really want to do (like going to swimming class). But then I realised, sometimes the today’s stuff (like learning Chinese) can be fun!

We spoke about how she likes some classes (eg. Chinese) but doesn’t like others (eg. Ballet (I have no idea how that happened, she asked to go to ballet)). Swimming is a mixed bag - she is scared of it but usually has fun during the class. All of them are investments, sometimes they are fun, sometimes they are not.

This case of washing her hair is a chore-y investment - you are investing into a good habit so your hair can be nice and clean. Building good habits is an excellent investment!

For investments to pay off as acquired knowledge and capabilities in the future, you do need some level of difficulty, which can inherently be uncomfortable. When I am in the zone and learning and discovering something, even though it’s difficult and draining, it is actually a lot of fun.

But the difficulty need not be delaying gratification at all. For investments with the best RoI (lots of R and the I doesn’t feel like an I), you dont need to delay your gratification at all. You just focus on hard things that excite you!