Save more Spend less

Would you wait for marshmallows? Your answer says a lot about you.

The way we relate to time can have a significant impact on how we manage our marshmallows and our money.

The way we relate to time can have a significant impact on how we manage our marshmallows and our money. Let me explain.

In the late 1960s, a psychologist at Stanford named Walter Mischel ran a clever experiment known today as the Marshmallow Test. To study delayed gratification, he asked preschoolers to choose: They could have one fluffy confection immediately or wait fifteen minutes for two.

Decades later, follow-up studies found that the children who had waited for two marshmallows reported better life outcomes. Good things came to those that waited in this experiment. The two marshmallow kids had higher test scores, lower drug use and healthier body weight.

So what do marshmallows have to do with money or time management? This simple experiment led to research into a concept called time discounting, which says that some of us have a tendency to see a reward as less valuable when it’s further in the future. To a person who discounts, two marshmallows in 15 minutes are less enticing than one marshmallow right now. To them, the second marshmallow isn’t worth the cost of waiting 15 minutes. For the ones who wait, two marshmallows are worth the extra time spent.

Scenario One Scenario Two
Cost = Waiting 0 minutes 15 minutes
Benefit = Marshmallow 1 marshmallow 2 marshmallow

Time discounting has huge repercussions on the way people manage their schedule and also on the way they manage their finances.

Let’s swap sweets for cash: Would you choose $10 today or $100 next month? If you discount time heavily, chances are you’d pick $10. This may not seem that significant until you consider what effect this could have on your finances (and your life) over the years.

Imagine if someone gave you the choice between $10 and $100 every month? A year of discounting (choosing the $10) would lead you to make $120. If you waited for the $10 everytime, you could make $1,200 by the end of the year.

Time discounting can make it hard to save money because the future feels so far away, and this can also have a big impact on the quality of your life. Last year, I went to South Africa with a research team to study a form of time discounting in the outskirts of Cape Town. Our preliminary results suggest that future-oriented people might be more likely to escape poverty than people who tend to discount time more.

If you’re a one-marshmallow person, don’t worry. There’s a simple way that you can manage your life and finances to improve your savings: Bring the future closer to you.

Don’t worry. This doesn’t have to involve any time travel. Bringing the future closer to you is as easy as setting intermediary goals. For example, if your goal is to save $20,000 for a down payment on a house, start small. Set several smaller monthly goals that are easier to reach. Achieving incremental wins will feel rewarding and give you the motivation to keep moving closer towards your larger goal.  

In fact, this technique can make saving feel easier for anyone, regardless of what you think about marshmallows.