Saving for retirement is all about delaying financial gratification. This article looks at the famous Stanford Marshmallow Experiment, its findings, and how it might help us understand delayed gratification in the context of saving and spending as an adult.
The Stanford Marshmallow Experiment
If you’ve taken an Intro to Psychology course, you’ve probably heard of a few popular experiments.
There’s the guy who experienced a freak accident resulting in a traumatic brain injury and rapid personality changes (Phineas Gage), the Stanford Prison experiment (which, as it turns out, was critically flawed in design), and Pavlov’s Dog, among others. One of my personal favorites was learning about the man who thought his wife was a hat (Google it, trust me).
Another seminal study in the psychological sciences is the Stanford Marshmallow Experiment. This famous study was actually a set of experiments meant to study delayed gratification (in other words, self-control) in children.
Conducted in the 1960s, the experimental protocol asked children ages three and a half to roughly 6 years old to make a choice between two scenarios. The first: a small, yet immediate reward. The second: a bigger reward, but delivered after a few minutes.
The reward? A marshmallow.
What the Study Found
While the imagery of a study about adorable kiddos getting marshmallows is memorable, the findings from the study participants and follow-up assessments are what made it iconic.
The original researchers tracked participants long after the study to glean additional hints about how the children turned out as adults.
Of the 500+ participants in the study, most opted to wait 15 minutes so they would receive the larger reward (two treats). But what does that mean?
Well, the most useful way to interpret those findings might be the noteworthy 1990 follow-up study examining the relationship between SAT scores and performance on the marshmallow test.
This study found that participants who delayed in the marshmallow test went on to score higher on the standardized test. Similarly, additional research in this area has found a relationship between delayed gratification and reaction times, or cognitive performance, on certain types of tests.
Age was found to be a major factor in the decision to wait it out in order to get two marshmallows. This likely reflects the fact that kiddos are rapidly developing self-regulation and emotion control skills, so the logical expectation is that older children would have better self control.
The key follow-up research finding was that children who opted to delay gratification in the experiment had better outcomes later in life. From their health to their careers to their relationships, delayers seem to benefit from the underlying cause, whatever that may be (more research is needed to determine the causes).
To further explore the connection between outcomes and self-control, a 2011 brain imaging follow-up study of original participants from 1960 found differences in the prefrontal cortex.
That part of the brain is responsible for planning, decision-making, perception of time, reward processing, and other executive functioning cognitive tasks. In the most recent replication (2018), significant relationships between achievement and delayed gratification reaffirmed.
An Important Criticism for Context
Over the years, one major criticism worth mentioning has come up regarding this study.
The group of children who participated were picked to participate from a nursery on campus at Stanford. As you might guess, most of the little ones at that nursery had parents on the faculty or whom were students.
Furthermore, given a relative lack of diversity in the study and the elite nature of that university, we can safely guess that the majority of the kids were White, living in financially stable homes with food security, and being raised by highly educated parent(s).
Why does that matter? For the purpose of this article, because it isn’t representative. Here’s why this is germane to this discussion about money and delayed gratification.
If a child is growing up in an environment without financial stability, food security, or caretakers with predictable work schedules, that child may not know when their next meal is coming or where it is coming from.
If you didn’t know where your next meal was coming from, would you look a gift horse in the mouth? Would you feel safe and certain about it if you had an immediate need — meaning you are already hungry?
The point here is that children without reliable food sources and high economic uncertainty are less likely to pick the possibility of a beefier reward over the instant and guaranteed reward.
The children in the experiment did not represent those socioeconomic circumstances and this major sampling problem (no control variables) was overlooked.
This study underscores the role childhood environment plays in shaping childhood behaviors and adult achievement or health outcomes. In other words, the ability to delay gratification may be a better indicator of behavioral or cognitive development resulting from certain environments rather than innate personality characteristic (self-control).
Kids And Money
Here’s something surprising. The recent studies I mentioned above suggest Gen Z kiddos are more patient than Gen Y (millennials).
While the jury is still out on the cause (it could be that we’re all just getting gradually smarter; this is known as the Flynn effect), this counterintuitive finding may mean each generation is increasingly prepared for academic challenges, coping with life stressors, and healthy relationships.
On the other hand, some researchers are arguing the results of new studies change the story about what might be underlying decision-making about delaying gratification. It might be environment and background, they say.
Delayed Gratification with Money vs. Marshmallows
“Start early.” That’s the boilerplate advice you’ve heard a zillion times about saving for retirement. And, it’s good advice, even if it’s painful to hear as your first paychecks are coming in from your first big career role. I mean, who doesn’t want to spent their whole paycheck?
But, if we’re talking about delayed gratification in our finances, retirement is the quintessential example.
We’re told to put away large chunks of our paychecks, then wait decades to spend it because our nest eggs grow considerably throughout our working years. (Hopefully far more than the marshmallow reward, which only doubled, albeit in 15 minutes.)
What could possibly be a bigger delay than decades of waiting? Maybe building equity in a house, but even then families only stays in one home for about ten years on average.
Connecting with the point above, retirement is an economic privilege afforded by those whose basic needs are being met and future needs are simultaneously considered.
That doesn’t mean we don’t work our butts off and face challenges, but it’s an option 25% of Americans don’t see any way to achieve, for a variety of reasons.
Many Americans, sadly, will work every day until they can’t any more. Where economic security is an elusive pipe dream to a very real cross-section of our communities, where people are scraping together any income they can to keep the lights on.
That type of economic insecurity is analogous to the children who might hypothetically select the immediate reward because it is so badly needed if they’re literally starving.
The immediacy of meeting basic human needs will always take priority psychologically. That’s a survival mechanism; to learn more I recommend learning about Maslow’s Hierarchy.
This is also why children in underprivileged neighborhoods have trouble focusing in school; their basic needs may not be met, making it difficult to focus.
This relates to the myth of poverty that poor people are poor at planning ahead or finding deals when, in fact, being poor is expensive, which exacerbates the core economic problem of resource scarcity.
So how does the study come into play with saving for retirement? It’s hard to say precisely, unfortunately, because we don’t know what causes the connection between adult outcomes and the children’s choices to delay or not.
But, if you do consider yourself a born saver, you might want to give the folks who raised you a call to say thanks. It’s likely your financial habits and outlook are linked with environmental factors as you grew up.
It’s alternatively possible your brain development and some behavioral habits have influenced your way of thinking about and ability to plan for long-term goals.
Much like contributing to your 401(K) or Roth IRA, paying down your mortgage is something of a delayed gratification exercise. You won’t realize the benefits of your equity unless you seek it out, perhaps via a home equity line of credit or the sale of your home.
An interesting parallel to the Marshmallow Experiment is how some home owners are extremely committed to paying off their mortgage as quickly as possible. I mention this because financial experts’ opinions are caught in a quagmire of pros and cons.
What’s the best approach for building wealth and security? Would the capital gains from other investment opportunities during the same time frame outweigh the payoff option?
Consequently, the question I pose is: Would those home owners who want to payoff their mortgage ASAP see the near-term gratification of paying off the home as preferable even if the delayed mortgage payoff (and gratification) results in a larger lifetime nest egg?
There’s no question that it’s tough to stay motivated when paying off debt for the same general reason: it isn’t immediate.
In fact, it takes many people nearly 20 years to repay their student loans, despite the fact that the standard repayment period for federal loans is actually 10 years. Being free of a monstrous student loan debt load would be a major case of incrementally delayed gratification.
The ease with which you manage daily spending diligently for 20 years is, in all likelihood, a proxy for executive functioning.
But, if you’ve checked out debt repayment and consolidation calculators, you may have noticed debt can be a sorta-delayed, sorta-not-delayed source of financial gratification. It may take you years, even decades, to pay off a large chunk of debt.
That’s obviously a very delayed gratification scenario. However, by refinancing or consolidating your loans with a new provider like SoFi with more competitive rates, you could lower your payments as a byproduct of securing a better lifetime interest schedule.
Shrinking your overall payback amount in one step = instant gratification!
Some methods for debt repayment are also designed to draw on the psychological principle of near-term gratification.
The snowball method, in particular, is all about the “quick win” of paying off the smallest balance you have, then moving onto the next biggest balance for the next quick-ish win.
Talk about thankless, delayed gratification (helping your kid pay for a college education). Imagine opening a college savings account for a child, putting your hard-earned money into it, and then giving it all to said child.
Between the day you invest your first $100 and dropping them off at college, you might experience 18 emotionally-trying years that test your patience and sanity!
Those “OMG my kids are making me nuts” stories always make me chuckle, so I really enjoy the Huffington Post roundup of Funniest Mom Tweets.
There’s invariably always something in the list suggesting moms and dads, from time to time, would rather drain their kids’ 529 plan and go live on a deserted island. By themselves.
But, since most parents don’t run off with the college fund, I surmise impulse control, emotion regulation, and parental instincts probably kick in.
As a bonus, if you have enough control to delay gratification nearly 20 years to see your kid off to college, that might just mean you’ll rub off on them to be gratification delayers, too!
Regardless, their self-control gets a nod from me. That temptation of instant gratification on a quiet island, sipping a coconut drink, might get the better of me one day.
A study conducted nearly 60 years ago reveals more than we might expect about ourselves, and our children, in the always-on, ever-connected, digital-addiction and instant gratification world we find ourselves in today.
The early and subsequent findings that delaying gratification may predict or be related to stronger executive planning (e.g., cognition) or self-regulation due to learned behaviors is fascinating, if a bit open-ended in the research community.
Besides retirement, debt repayment, college savings, and mortgages, where do you see delayed gratification showing up in your financial life?