The Marshmallow Test – it might sound like an eating competition but it’s actually a famous social-science experiment. But what does it have to do with money? Considering I named my website after this famous experiment, I believe the marshmallow test can teach us some very valuable lessons about delayed gratification and money management.
What is the marshmallow test?
The marshmallow test was originally conducted by Stanford University psychologists in the 1970s. It involved presenting a child with a marshmallow, and giving him/her two options:
1) Refrain from eating the marshmallow for 15 minutes, and you can have a second marshmallow
2) Or eat it now, meaning you go without the bonus marshmallow
The marshmallow experiment was intended to test children’s willpower and impulse control. Can the kid delay their gratification to double their rewards? As you can imagine, most of the children couldn’t wait and ate the marshmallow straight away. However, about 30% were able to delay gratification and wait for the second marshmallow.
The video below can give you a better understanding of the marshmallow experiment in action – and probably a good laugh as a bonus too!
So what does all this have to do with money and personal finances? Quite a bit, actually. Learning to delay gratification instead of seeking instant gratification is crucial for success, particularly when it comes to things like investing and building wealth.
The marshmallow test & personal finances
Interestingly, both our evolution and today’s society with social media and countless online shopping opportunities push us towards instant gratification. Unfortunately, instant gratification doesn’t help you if you want to become wealthy. In fact, it does the opposite.
This is exactly one of the reasons why many high-income earners are not actually wealthy. The more these individuals earn, the more they spend. They might even spend more than they earn to support a lifestyle that has high fixed costs, such as a big house and fancy cars. This is a life of instant gratification where you have to work harder and harder to maintain your lifestyle. As a comparison, wealthy people have passive income and make money work for them instead of working for money.
Whether you want to become financially free or just save money for something special such as your first home or wedding, delayed gratification is essential. The marshmallow test and other studies suggest that the better you are at delaying gratification, the better off you will be financially.
If you’ve lived most of your life desiring instant gratification, it might be tough to change the ingrained habits you’ve been practising. However, once you’re aware of the importance of the concept of delayed gratification, it’s easier to start tackling those toxic money habits.
Start with small adjustments to your thought patterns by acknowledging your habits intended to provide immediate gratification. For example, a no-spend month or kakeibo budgeting method can be a great way to help you identify your spending weaknesses.
Below you can find three actionable tips to help you to prioritise your long-term financial goals.
And remember, all good things take time and effort!
Tip #1 Focus on your goals & visualise yourself having future rewards
One of the main reasons why so many of the kids in the marshmallow experiment ate the marshmallow quickly is because they didn’t see a connection to their future selves – the one that would have two marshmallows. To keep yourself focused on the future, it helps to have an image of what your successful future will really look like. Reminding yourself of the financial goals you are aiming for is a great way to improve your willpower. By visualising achieving these goals, you will find it easier to stick to your plan.
Tip #2 Stay clear on temptation & surround yourself with people with willpower
When it comes to personal finances, one way to reduce the temptation to spend is to keep any money earmarked for long-term goals out of your everyday bank account. “Out of sight, out of mind”, as the saying goes. With this being said, it’s a good practice to move any money you want to save or invest from your income to a savings account immediately when it reaches your bank account.
To further avoid temptation, pay attention to who you spend time with. Did you know that you are the average of the five people you spend the most time with? If you spend time with people with poor self-control and bad habits, you are setting a low bar for yourself too. But if you surround yourself with like-minded and supportive people who are also working towards bigger goals, you will find it easier to say no to temptations. This applies to social media too so be mindful of who you follow. “Influences” are called so for a reason. So make sure they don’t negatively affect your financial decisions or make you spend on things you shouldn’t.
Tip #3 Reward yourself (within reason)
Another learning from the marshmallow test is the importance of reward. Financial freedom or saving for one big goal can often take many years. Therefore, it’s essential to celebrate important milestones along the way. If you cut all your expenses and try to be too thrifty, you might save a lot of money but you’re probably not enjoying your life. After all, the goal of long-term financial decisions is to live a better life both now and later. And of course, enjoy the journey! Other studies also show that spending money on small pleasures can boost your happiness.
Finding the balance between living in the moment and planning for the future is the key to a successful life. Rewarding yourself also reinforces your willpower to stay on track with your goals.
But where is the fine line between treating yourself and getting distracted on your way to paving a better financial future? Once you have set aside dedicated contributions towards your priority goals and fixed expenses, you can then allow yourself to enjoy the rest guilt-free. If you don’t have enough leftover money after doing this, starting a side hustle can be a great way to earn the additional income you can spend to enjoy yourself.