The Daily Marshmellow Dilemma

There’s a classic one-liner that says training for a marathon can be hard work today, but it'll be good for you in the long run. Although the concept is simple, the message is clear- delaying gratification today leads to a better tomorrow (i.e. diet, exercise, career, wealth, and even religion).

Delaying gratification can be hard because self-sabotage is easy. We treat ourselves with sugar when we’re supposed to diet. Or we stay up late instead of waking up early. We make these tradeoffs in personal finance too.

 1. We spend more money today and save less for tomorrow

2.  We sell long term investments to gamble on speculative assets (this is how bubbles happen)

3. We sell long-term diversified portfolios hoping to avoid short-term market drops

4. We don’t keep a rainy-day fund because it’s either too tempting to spend it or too boring not to invest

 A Stanford researcher in the ’60s created “The Marshmallow Experiment” to prove the concept. He entered a room of 5-year olds and offered the children one marshmallow right away, or two if they waited for him to come back. So the choice was simple: one treat right now or two treats later. Naturally, the room was split.

 What was interesting was how the study progressed over 40 years: The children who were willing to delay ended up having higher SAT scores, lower levels of substance abuse, were physically healthier, had better social skills, and generally better scores in a range of other life measures. You can bet they ended up saving more money as well.

 Are you willing to delay today, to better your tomorrow?