Money and Marshmallows
Let’s say you are 5 years old and are offered the option of having one marshmallow or cookie now or two if you wait fifteen minutes. Which option would you pick?
Approximately forty years ago, a Stanford study conducted by Walter Mischel performed that test on over 600 children. Only one third were able to control their urges, overcome temptation, wait fifteen minutes and get two marshmallows.
Fast forward over ten years later, when Mischel’s children were young teenagers and friends with some of the original test subjects. He found out informally, that there was a relationship between the results of the marshmallow test and the success level of the students who participated.
So Mischel did a follow-up test in the late 80’s and found that the pre-school children who were able to delay gratification were more competent as teenagers(according to their parents).He then checked in on them again in 1990 and discovered that those students who resisted temptation in the first test ended up scoring higher on their SATs.
Last week, Steve Vernon wrote a piece for CBS Money Watch, comparing this study to how people generally handle delaying gratification with their money and retirement. He looked at the number of Americans who either take an early option for beginning Social Security (almost 50%), cash in on their defined benefit plan (the majority) or withdraw their 401k money, with little thought about the longer-term financial ramifications or the rewards of waiting and taking the long view.
Of course there are other considerations that come into play when it comes to using up retirement money, but there should be a plan that starts early and has a long waiting period, until there’s a huge pile of marshmallows to enjoy for many years! (These marshmallows don’t go bad.)
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