Have you ever heard of the famous Stanford marshmallow experiment? Researchers ran a series of studies in the 1960s and ’70s on delayed gratification using kids as subjects. They placed a marshmallow on a plate in front of a kindergartener. The children were told they could eat the marshmallow right away if they wished, but if they waited 15 minutes, the staff would bring them more marshmallows. Video footage of the experiments show the kids covering their eyes, tugging at their pigtails and even gently stroking the marshmallow like a favourite pet. It’s pretty cute. But of the 600 children who took part in the experiments, only a third were able to hold off long enough to receive the extra reward. It was later suggested that the kids who delayed their gratification were found to be better adjusted as adults. Don’t feel too bad if you’d go straight for the marshmallow too. Our brains are wired to place extra value on the rewards we receive right away. Psychologists call this Present Bias or Future Discounting. For adults, it very much applies to our ability to save money. Whether we’re saving for retirement or for a weekend away, we have a natural tendency to want to spend our money today rather than save it to be spent later. A bird in the hand is so much more enticing than two in a bush.
What can you do? Whether it’s a marshmallow, a muffin or your retirement savings, one way to make better choices is to bury the alternative. Hide your marshmallows at the back of the cupboard and set up a pre-authorized transfer to your savings timed to your payday. That way you don’t have to even think about it.