Tina is an intellectually-gifted bartender who struggles to pay her bills. Tina serves martinis to Susan. Susan is no more intelligent than Tina, but Susan is a millionaire. If not intelligence, then what explains the difference between Susan’s wealth and Tina’s financial lack? And what do sticky, gooey marshmallows have to do with it?
In the 1960s, Stanford University psychology researcher Walter Mischel conducted a longitudinal study. Mischel placed marshmallows in front of hungry four-year-old children. He told them they could have one marshmallow now, or if they could wait several minutes, they could have two. Some children quickly grabbed the marshmallow and ate it. Others waited.
Mischel followed the group and found that 14 years later, the children who eagerly devoured the first marshmallow weren’t faring as well as the children who had waited for two marshmallows. Years later, the “grabbers” suffered low self-esteem. Teachers and parents viewed these kids as stubborn, prone to envy and easily frustrated. The “wait-for-two-fers” possessed better coping skills; were more socially competent, optimistic, self-assertive, dependable and trustworthy; and scored about 210 points higher on their SATs.
Perhaps the key difference between financial lack and wealth is not merely hard work or superior intelligence, but the ability to delay gratification.
What can the Marshmallow Test teach you about personal finance?
1. Avoid looking at marshmallows when you’re hungry
During the Marshmallow Test, some successful kids reportedly covered their eyes so they couldn’t see the tempting treat. My take away tip: Avoid temptation– stay away from the mall when you’re bored.
2. Save a marshmallow today and you’ll eat well tomorrow
The children who waited for the second marshmallow were rewarded with a 100% return on their first marshmallow. My take away tip: Unleash the power of compounding and you’ll be wealthy when you retire.
3. Drooling over s’mores? Wipe your chin and wait for the hot goo to cool– because you don’t want to burn your mouth!
One child reportedly licked the table around the marshmallow while waiting for the experimenter to return. My take away tip: Imagine having what you want, but wait until the time is right to consume. If you shop, wait until you have cash in hand to buy– don’t get burned by finance charges and credit card debt!
4. Stick your marshmallow into the fire, keep your eye on it and remove when perfectly browned– before it bursts into flames.
Some successful children watched their marshmallow to prevent others from snatching it, waited patiently until the researcher returned with the expected second marshmallow, then enjoyed their reward– without begging greedily for more. My take away tip: Invest in the market, monitor your investment and sell your shares when they reach your target price– before the bubble pops.
5. Give your children mini-marshmallows and teach them how to make rice crispy bars.
Some kids handled the wait by turning their back to the marshmallow, singing songs or talking to themselves. My take away tip: With practice, kids can learn how to delay gratification. Provide opportunities for your child to develop strategies. Give your children an allowance and teach them money management skills.