Marshmallows and Financial Planning

Saving money can be a little like passing on a tantalizing piece of cake; you know you should, but...

In a challenging investment environment, it's important to remember that factors beyond stock market gyrations can impact financial success.  The ability to save money plays a vital role.  Unfortunately, saving can be hard.  Really hard.  A recent article in the New Yorker highlights the difficulties that we all struggle with in delaying immediate gratification.

Researchers at Stanford University conducted an experiment in the 1960s whereby they presented four year olds with a frustrating proposition.  A youngster was placed in front of a tray of marshmallows and told that she could either eat one now or receive two if she could wait a few minutes until the adult conducting the test returned after stepping out of the room.  Most of the kids could not wait -- they either ate the treat right away or succumbed to temptation after a couple of minutes.

Such a result is not surprising.  It's the follow-up study, however, that is more fascinating.  The researchers found that the young children who were able to hold out on eating the marshmallows tended to do better academically down the road.  As the professor running the study said:  "If you can deal with hot emotions, then you can study for the S.A.T. instead of watching television... And you can save money for retirement.  It's not just about marshmallows."

All is not lost.  We can develop coping skills to overcome the lure of the here-and-now.  In fact, the nursery school students able to hold off on a treat may offer a clue to success.  The young hold-outs did not become obsessed with the marshmallows -- the "hot stimulus;"  instead, they distracted themselves by covering their eyes, playing hide-and-seek under their desk, or singing songs.  They did not try to defeat their desire -- it was merely forgotten.

We will never defeat our desire to consume, nor should we.  But we can avoid the pressures of spending more than makes sense by establishing fixed methods of saving (the equivalent of taking our eyes off the marshmallows).  Hopefully a judicious pattern of spending and saving will provide for more treats in the future.

Words of Wisdom

Saving is a very fine thing, especially when your parents have done it for you.
-- Winston Churchill