Delayed Gratification – The Marshmallow Test and Credit Cards

The idea in a nutshell :

• This article is not intended to offer financial advice.
• The Marshmallow Experiment was conducted by Stanford Uni 50 years ago.
• It offered kids a reward for delaying gratification.
• The experiment results indicate that individuals who delay gratification generally do better in life.
• More broadly, sacrifice and reciprocation have been part of human culture and relationships for a long time.
• Compound interest is, in my opinion, the most crucial consideration in my financial planning. 
• Borrowing money with compounding interest rates is the opposite of sacrifice.
• Combining sacrifice and long-term horizons is the most sensible path to wealth.

The Marshmallow Test and Its Implications

In the 1960s, Stanford University conducted what is now a famous experiment you may have heard about before. 

The Stanford Marshmallow Test gave kids the opportunity to explore their ability to sacrifice a little now to have more later. Source

The experiment was ultimately an attempt to determine the kids’ ability to delay gratification. Researchers offered participant children (typically five years old or slightly younger) a marshmallow and gave them two options. They could immediately eat the marshmallow they had been provided if they wished. Alternatively, if the kids could wait as the researcher left the room for a few minutes, they’d be given another marshmallow – a total of 2 to eat. 

Years later, the researchers checked in on the same kids involved in the experiment and found that those who delayed gratification had generally done better in life than those who did not. The kids who put off eating the marshmallow and waited for the second when the researcher came back achieved better exam results, lower levels of addiction, lower BMIs (Body Mass Indexes – an indicator of physical health), and scored better on many aspects of what might be considered a worthwhile life.

It Appears The Results of the Marshmallow Test are True – But Only To A Degree

There are criticisms of this research. For example, it’s been suggested that kids from wealthy families were happier with delaying gratification. One contributing cause was suggested: their life experience always included excesses. As a result, if they don’t eat now, food will be available for them later. Essentially, the suggestion is that if someone’s environment is safe and reliable, it’s easier and more sensible to sacrifice now to get more later.

That’s a specific example of a general phenomenon. We all have to acknowledge that delaying gratification involves some risk. You could hit the gym daily, eat well, attend university for a Ph.D., and die from cancer at 25. You could save for retirement and get hit by a bus the day after they gave you your gold watch.

In some ways, the best strategy depends on how safe/reliable the environment is. Soldiers in the war smoked because they all believed they might die the next day. If a meteor was heading for Earth, you might just try heroin – I once heard Billy Connelly suggest something similar.

Credit Card Debt (A Grown-Up Marshmallow Test)

I once saw an interview with the USA Secretary of Education. The interviewer asked her – “If you could only teach US children one concept, what would it be? (I looked for the clip online but couldn’t find it.)

She answered, “Compound interest – because it can work for or against you.”

That was a really interesting answer. 

Looking back on my twenties, I can see that I felt as indestructible as any foolish young man, but I also realized that the best investment tool at my disposal was time. As difficult as it was, I put away some of my savings each month and invested it. It paid off. I wish I’d been that sensible my whole life.

Delayed gratification is Sacrifice in general

Jordan Peterson has some interesting thoughts on sacrifice. 

I agree with his central premise that sacrificing things now can help in the future. He applies it to diet, smoking, exercise, and education – many of the same issues – each of which has a cumulative effect on the quality of life. Peterson posits the same downstream examination of the participants in the marshmallow experiment.

I Like To Think of Sacrifice in Terms of Indiana Jones.

In the third Indiana Jones film, ‘The Last Crusade,’ Indy is looking for the Ark Of the Covenant. He’s with a beautiful woman who is grabbed by the bad guys who threaten to throw her into a fire pit. The question, of course, is why they would do that. Specifically, why would they sacrifice the most valuable thing they had? She was a good-looking woman (a good approximation of good genes), and she was of childbearing age – she was many of the things which made women valuable in those times. So why sacrifice her?

In one of my favorite films, Indiana Jones and The Temple Of Doom – the bad guys want to sacrifice a beautiful young woman. Why would they sacrifice something they valued so much? Source

I think it’s more like sacrificing something they care about – a fertile young woman – to make friends with the gods. Friends have reciprocal relationships. We help each other out. By sacrificing something valuable to God, the hope was he’d pay back – or at least not punish them.

Try Not To Eat The Marshmallow

Perhaps there is not enough sacrifice in life. If you want to build wealth, you must sacrifice now for later.

Credit card debts in the USA are the opposite of the marshmallow test.

I’ve just left the USA after living there for a year or so. The average credit card debt is currently $5.5k for each adult. At an average credit card interest rate of 20% that means on average, people are paying $1.2k per year just in interest!

In effect, these people have said to the researcher, no, I won’t wait for my marshmallow, give me a second marshmallow, and later, I will give you three back. 

Conclusion

I realized a long time ago that some of the things I valued most in my memories involved high levels of difficulty and sacrifice in achieving them. 

When I got to the top of Kilimanjaro, I knew I’d been hallucinating on the way, probably caused by the combination of tiredness and altitude. Years later, I did a Yacht-Master qualification which involved dealing with one of the most difficult and rude people I’ve ever met for several consecutive months. I ran a half marathon for which I didn’t prepare properly – and the last half-mile uphill bit of that run was, without doubt, the most demanding physical thing I’ve ever done.

When it comes to wealth, it’s best to save marshmallows and invest them so you have more for later when you need them.