The Marshmallow Test is a psychological experiment designed to determine a person’s ability to delay gratification and plan for a more prosperous future. Managing your money doesn’t have to be all-consuming, but it does involve balancing today’s priorities with tomorrow’s possibilities. Find out why financial planning is the ultimate marshmallow test, and explore some tips for passing it.
What is the marshmallow test?
The marshmallow test is a now-famous psychological experiment designed to assess children’s ability to delay gratification. This test was first conducted by psychologist Walter Mischel at Stanford University in the 1960s. In this experiment, you place your child in a room with a marshmallow (or another tempting treat) and give them the following choices:
- Children can eat marshmallows right away.
- If you can wait the specified amount of time (usually about 15 minutes), you’ll be rewarded with two marshmallows.
The main purpose of this experiment is to observe how well children are able to resist the temptation of immediate rewards and, as a result, their ability to delay gratification.
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It turns out that the results of the marshmallow test are correlated with various life outcomes. Follow-up studies suggest that children who are able to delay gratification tend to have better life skills, academic performance, and social and emotional well-being later in life.
Note: Subsequent research has shown that the conclusions of the marshmallow test are somewhat incorrect. Social trust, socio-economic background, and other factors influenced children’s performance on the marshmallow test.
Why financial management is the ultimate marshmallow test
Money management can be thought of as the ultimate marshmallow test, as it requires many of the same skills and characteristics associated with successful classic psychology experiments. Here are some reasons why managing your money can be likened to the marshmallow test.
- Delayed gratification: Both Effective Money Management and the Marshmallow Test include the concept of delayed gratification. When it comes to personal finance, it’s important to delay immediate spending impulses and prioritize saving and investing for future goals. This is consistent with the idea of waiting for a larger reward in the marshmallow test.
- self control: Successful money management requires self-discipline. This includes resisting the urge to make impulse purchases, sticking to a budget, and avoiding actions that could jeopardize your long-term financial goals. Self-control is a key element in both scenarios.
- Long term plan: Similar to the marshmallow test, managing your money effectively requires long-term planning. This includes setting financial goals, creating a budget, saving for retirement, and making strategic investment decisions. People who excel in these areas often demonstrate an ability to plan for the future, much like children who can wait for their second marshmallow.
- Addressing financial challenges and risks: Both the marshmallow test and personal finance have to deal with challenges. Personal finance has inherent risks that individuals may encounter, such as unexpected expenses and market fluctuations. Being able to meet these challenges, make informed decisions, and stay on track with long-term financial planning is essential.
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- Financial discipline: Successful money management requires financial discipline. This includes consistently following a budget, saving regularly, and making informed choices about spending and investing. Financial discipline is an important characteristic shared by people who may experience delayed gratification on the marshmallow test.
- goal setting: Both scenarios involve setting goals and working towards them. In the marshmallow test, the goal is to wait for the second marshmallow. Goals in money management may include saving for a home, financing an education, and achieving financial independence. The common element is the ability to set goals and work towards them.
Average Social Security Start Age, Examples of Failing the Financial Marshmallow Test
According to the report, Boston University Retirement Research Center, 90% of Americans begin receiving Social Security retirement benefits at or before full retirement age. In fact, the most popular age to start is her age of 62, which is the earliest possible age.
This is often an example of failing the personal finance marshmallow test.
If you don’t already have Social Security, one of the best things you can do to make yourself more comfortable is to wait until at least your normal retirement age to claim your benefits.
- If you reach normal retirement age (age 66 if you were born between 1943 and 1959), you can receive 100% of your benefits.
- After that, your benefits increase by 8% each year until age 70. This means that at age 70 he will receive 32% more benefits than at age 66.
- If these benefits are taken when you are younger than your normal retirement age, they will be reduced based on the number of months you receive benefits before reaching full retirement age.
example: If your full retirement age is 66, your benefits will be reduced by 25% at age 62. At age 63, it’s about 20%. At age 64, it’s about 13.3%. According to , at age 65, the rate is approximately 6.7%. Data from the Social Security Administration.
Those who apply early are forgoing nearly $100,000 in benefits over their lifetime.
Psychological tips to pass the marshmallow test and increase wealth and security
1. Quantify the benefits of delayed gratification
Olivia Mitchell is an economist at the Wharton School at the University of Pennsylvania. She tested ideas that could help people make the “right” and more beneficial decisions about when to start Social Security.
Mitchell conducted an experiment. She offered different types of incentives for people to delay starting their Social Security benefits, and the results are very interesting.
- When potential Social Security recipients were told the difference in benefits they would receive if they filed at age 62 or delayed until age 66, 50% chose to delay.
- If they needed to work while waiting for benefits to start, only 46% chose to defer.
- But what if the researchers promised recipients they would receive $1,000 a month if they claimed late and a lump sum of $60,000 when they claimed when they turned 66? ? After that, his willingness to delay rose to 70.3% (no work while waiting) or 55.5% (half work while waiting).
Therefore, it appears that lump sum payments could be an interesting incentive for people to delay starting Social Security.
2. Focus on future rewards and have goals.
Children who successfully complete the marshmallow test focus on the goal of getting two marshmallows instead of one.
If you’re trying to make good financial decisions to ensure future wealth and security, you may want to focus on your retirement date and other financial goals. Want to buy a villa? Fund college for your children? Travel around the world.
Keeping your goals and priorities in mind for future rewards will help you make better decisions today.
3. Distract yourself
Some children who succeed with the marshmallow test find ways to distract themselves from the temptation of immediate rewards. They looked away from the marshmallow, sang songs, or engaged in other activities to distract themselves from the temptation.
If you’re facing short-term financial temptations but need money for long-term goals, it’s important to learn how to focus your mind on something other than short-term desires. So if you really want to splurge on a weekend ski trip but know it’s not in your budget, refocus your short-term thinking on activities that are more affordable and closer to home.
4. Use your imagination
Some children were able to get two marshmallows by waiting and using their imagination. They pondered the negative and positive possibilities of the future and considered the rewards and consequences of their actions.
- Disappointment when researchers and parents succumb to temptation.
- Ability to taste two whole marshmallows.
You can also imagine yourself reaching retirement with less income in the future. Then you can visualize the joy of achieving your savings goals, enjoying a comfortable retirement, and achieving financial freedom. Imagining the future is a powerful and proven method for promoting good long-term decision making.
5. Build habits
Many children who held out for two marshmallows had already developed the habit of delaying gratification in their daily lives and found it easier to wait for more marshmallows.
Explore 17 microfinancial habits to gain more wealth and peace of mind.
6. Manage your emotions
Emotions, especially fear and greed, can wreak havoc on our financial health. It’s important to understand the role emotions play in our financial decisions.
Financial decisions about investing, budgeting, or major purchases should ideally be based on rational analysis and a clear understanding of your financial goals. Emotions such as fear, greed, and panic can cause people to make hasty decisions that deviate from long-term plans. For example, when markets are volatile, fear of potential losses can lead you to sell your investments too quickly, missing out on potential long-term gains. On the other hand, excessive optimism or overconfidence can lead to risky investments that are inconsistent with your risk tolerance and financial goals.
Learn more about behavioral finance and how to outsmart your brain for more wealth and a better future.
7. Hold people accountable.
For some children, having someone to hold them accountable helps them resist temptation.
Sharing your money goals with friends, family, and financial advisors can also help you succeed with your money. It may be helpful to seek support and encouragement to help you stay on track.
8. make a plan
Whether it was through distraction or imagining the marshmallow as something else, kids who had a plan were more successful in delaying gratification.
Creating a financial plan that includes a budget, savings strategy, and investment plan is the ultimate way to pass the Financial Marshmallow Test. And NewRetirement Planner is your roadmap. It can guide your financial decisions and keep you on track.
Start planning today.