The Marshmallow Test
In the 1960s, Walter Mischel, a Stanford Professor conducted an experiment that went on to reveal one of the greatest secrets of success.
In the experiment, hundreds of kids between ages 4 and 5 were made to sit alone in different rooms and presented with a marshmallow on top of their tables. They were then presented with a deal.
The researcher was to leave the room for 15 minutes and if he came back and the child had not eaten the marshmallow, the child would get another marshmallow. But if the child had eaten his marshmallow, he wouldn’t get another one.
The kids had to decide between one marshmallow there and then or two marshmallows later. Between instant gratification and delayed gratification.
After the study was published in 1972, the results only became clear years later.
The researchers continued to study and follow up on the kids for more than 40 years. The children who waited for 15 minutes so that they would get the second marshmallow, ended up being successful in all areas of life that the researchers could measure. They had higher SAT scores, they had lower cases of drug and substance abuse, they had lower obesity rates, and performed better in their workplaces.
The researchers finally concluded that the ability to delay gratification is highly related to success.
Instant Gratification
Fast forward to the 21st century and switch the context from 4&5-year-olds in school to adults making financial decisions.
We are presented with two choices, to either save our money, live below our means, and enjoy the benefits of delayed gratification later.
Or else, we can hit debt ceilings, live beyond our expenses and miss out on the future rewards of delayed gratification.
For most of us, like the children who were unable to wait for 15 minutes so that they would end up eating two marshmallows, we have decided to rob money from our future selves. We are living paycheck to paycheck and borrowing money from every online loan provider.
Saving money, leave alone investing is something that is of little or no concern to us.
Delayed Gratification
One of the hardest things in life is the ability to balance short-term gains with long-term benefits. In almost all scenarios, when you win in the short term, you have lost in the long term and when you win in the long term, you lose in the short term. This makes it difficult to cultivate good financial habits over a long time.
In Atomic Habits, James Clear writes,
“The consequences of bad habits are delayed while the rewards are immediate. The costs of your good habits are in the present, the costs of your bad habits are in the future.”
Take bad debt for example. When you decide to take a car loan since all your work colleagues are driving, you will be rewarded immediately. You will have your car and you will have joined the same league as your workmates. You will enjoy the convenience that comes with driving your car but at an expense.
Every month, you will have to stress deducting a certain amount of your income to settle the loan. You will also end up paying more for the car than you would have if you had saved up for the money to buy the car instead of taking a loan.
The high-interest rates on loans and the total cost of the loan will not only give you sleepless nights but will also leave you stressed, depressed and sometimes, the thought of taking away your life will cross your mind.
How Long Should You Delay Gratification?
Saving
In personal finance, most people tend to fall into two camps. People who fall into the first camp are activists if not advocates of high savings rates. Their life mantra is to only spend their money on the essentials, save and invest everything else.
Spending
The other camp has people who do not fathom the logic behind saving. They falsely think that they should spend all their money today since tomorrow is never guaranteed. They make fun of people who are saving for retirement because for them, they only want to enjoy their money when they are young.
While most people tend to fall at the extreme ends of the camps, the sweet spot is usually on the fence. It is usually finding the perfect balance between meaningful spending and saving wisely.
People in the first camp often over save and over-prepare for the future that they miss on the short-term benefits of doing well financially.
People on the other end undersave and they end up saving less for their retirement or their future retirement goals.
In the Book, Die with Zero, author Bill Perkins writes,
“If you spend hours and hours of your life acquiring money and then die without spending all of that money, then you’ve needlessly wasted too many precious hours of your life. There is just no way to get those hours back.
If you die with $ 1 Million left, that’s $1 M of experiences you didn’t have. And if you die with $50,000 left, that’s $50,000 of experiences you didn’t have. No way is that optimal. The question we all must answer is how to make the most out of our finite time on earth.”
Instead of waiting to enjoy the fruits of saving and investing in your retirement, seek out meaningful experiences that will enrich your life with memories that you will always reminisce with a lot of joy.
As Bill Perkins adds;
“You should focus on maximizing your life enjoyment rather than on maximizing your wealth. Those are two different goals.
Money is just a means to an end: Having money helps you to achieve the more important goal of enjoying your life. But trying to maximize money actually gets in the way of achieving the more important goal.”
Don’t save money just for the sake of chasing more wealth or competing with your peers. Even as you look for a high savings rate make sure you are also investing in meaningful experiences that will enrich your memories.
SEE ALSO:
5 Simple Concepts in Personal Finance That Many People Get Wrong
