Delayed gratification is often thought of as resisting an immediate reward in exchange for a greater reward in the future. However the essence of delayed gratification is simply resisting an immediate reward in preference for a later reward. This act of self-control can be useful in many different aspects of our lives, including our financial lives. This month we’ll take a closer look at the financial implications of delayed gratification.
The seminal research on delayed gratification, the now-famous “marshmallow experiment,” was conducted by Walter Mischel in the 1960s and 1970s at Stanford University. Mischel and his colleagues were interested in strategies that preschool children used to resist temptation. They presented four-year-olds with a marshmallow (or other treats) and told the children that they had two options: (1) ring a bell at any point to summon the experimenter and eat the marshmallow, or (2) wait until the experimenter returned (about 15 minutes later) and earn two marshmallows. The message was: “small reward now, bigger reward later.” Some children broke down and ate the marshmallow, whereas others were able to delay gratification and earn the coveted two marshmallows. In follow-up experiments, Mischel found that children were able to wait longer if they used certain so-called “cool” distraction techniques (covering their eyes, hiding under the desk, singing songs, etc.). We might learn a lesson or two from these kids as we’ll explore in just a bit.
(By the way, in a follow-up study, Mischel thought he observed a strong correlation between delayed gratification as a 4-year-old and future success in life. However, a subsequent study by other researchers demonstrated that the correlation was much weaker than originally thought. Socioeconomic circumstances for the children turned out to be a bigger factor.)
Just to get our brains cooking, let’s look at some classic examples of delayed financial gratification. Saving for a large expense such as a new home or putting money aside for retirement are great examples of delayed gratification. We’re foregoing some immediate pleasures for an important goal down the line. Investing is another prefect example. You delay using your money now with the expectation that it will grow over time. Achieving these kinds of longer-term objectives can be facilitated by goal setting. You may want to review a couple of previous articles on this subject: Goal Setting and The Power of Goal Setting.
If saving/investing is one side of this coin, the opposite side is reducing expenses. Whipping out your credit card every time you see something you’d like, frequently leads to debt — and credit card debt is very expensive. So delayed gratification can mean avoiding purchases that you can’t afford at the moment. It might be helpful to reread Top Reasons to Become Debt-Free, Another Reason to Eliminate Credit Card Debt and Using Credit Cards Wisely.
Now how about those Stanford kinds covering their eyes, hiding under the desk and singing songs? Well, adults can learn from this when they’re having a hard time exercising delayed gratification. A perfect example is having a portion of your paycheck direct deposited into an investment account. Yep, if you don’t even see the money, you’re less likely to spend it. Another thing we can learn from these kids is that it helps to think more about our future objective (think comfortable retirement) than it does to think about the hot new car we’re passing up.
Delayed gratification can be challenging, but I hope you can see it’s an important part of your financial life. If you’d like to talk more about delayed gratification, or go over any other financial matter, in a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.