19th December 2016 at 10:40am
When it comes to managing your money successfully, what have marshmallows got to do with it?
Quite a lot, as it turns out.
It all goes back to behavioural science and the Stanford Marshmallow Experiment in the US in the 60s and 70s.
The experiment tested children to find out if they could wait for a bigger reward, as opposed to wanting and ‘needing’ something immediately.
Money was not the reward on offer, but marshmallows or cookies. How the children behaved showed the strength of their resolve to delay gratification – one marshmallow now, or wait and get more later.
Short-term gain may not be the best option
Most didn’t have enough self-control, with two out of three children nibbling or devouring the sweets, content with less now. The results showed most were hard-wired for instant gratification, with just a third having the control to delay their gratification and reap bigger rewards.
The experiment has been repeated countless times since then, and you can watch the often-hilarious results on YouTube.
What has delayed gratification got to do with your finances?
Here’s the really interesting part.
The research followed up on the children and found that those who could resist short-term temptation for potentially bigger rewards usually have better outcomes in life when it comes to money, as well as success in other areas such as education and even health.
And behavioural science shows that what’s true for children and sweets, is just as true when it comes to adults and how we approach our finances when we grow up.
The secret to doing something about it
If the reality is that most of us struggle with long-term benefits and tend to opt for the short-term rewards in life, what can we do to overcome that behaviour?
If you’re not blessed with the cast-iron resolve that some people are fortunate enough to have, there are some effective strategies you can put in place.
Take small steps
Don’t try to do everything all at once. Overwhelming yourself with a long to-do list is not a recipe for success. Some people find starting off with just one thing and doing it well is ideal.
Pay yourself first
Don’t wait until the end of the month and save what’s left. Instead, set aside a regular amount just after you are paid, before spending any remaining disposable income and allowing for essential bills and expenses, of course.
Auto-enrolment into workplace pension schemes shows how this works, with money paid direct into your pension from your salary.
Set your savings to auto-increase
If it’s hard to get round to your finances, make it easier by setting things up now for the future. Already pay into a workplace pension?
If your scheme offers it, think about opting-in to save more by automatically increasing your pension contributions a little each year when you get your pay rise. It will add up to more over the long term – and you won’t miss the additional money you never had.
Help your children learn about money
By getting them to realise that short-term gain may not be their best option.
And as money becomes more digital, and children less likely to encounter real money in the form of notes and coins, this could get that bit harder. Start them young, too – I really like the approach taken by my colleague Amanda Young in her blog on money lessons for children.
Make your decisions good ones
After all, there’s a lot to gain when it comes to your wealth, and much more besides.
One marshmallow, or two or three later on?
Money to see you through life’s big events, pay for your family’s growing needs and education, and save more to build up a pension that funds the lifestyle you want when you finish working, and when you’re still young enough to really make the most of things.
I rather liked Business Insider’s ‘9 hard truths about money every adult should learn to accept’:
“Learning how to manage your money is one of the most important things you’ll ever do. Being in a good spot financially can open up so many doors. Being in a bad spot can slam them in your face…
Watch TED talks to find out more
TED has some very engaging and funny talks on the Marshmallow test and instant gratification.
In the video below, Joachim Posada discusses the secret of success – self-discipline and avoiding the instant gratification trap. I’d recommend it if you have a few minutes’ spare. It’s well worth it.
The views expressed here are Andy Dunbar’s own. Standard Life is not responsible for the content on any external websites.
Information correct in December 2016.