Why Financial Planning Is the Last of the Marshmallow Test

The marshmallow test is a psychological test that measures a person’s ability to delay gratification and plan for the future. While managing your money isn’t all about sacrifice, it does include balancing your priorities for future opportunities. Let’s take a look at why financial planning is the ultimate marshmallow test and check out a few tips on how to do it.

What is the marshmallow test?

The marshmallow test is a popular cognitive test designed to test a child’s ability to delay gratification. The experiment was first conducted by psychologist Walter Mischel in the 1960s at Stanford University. The test involves placing the child in a room with a marshmallow (or other experimental treat) and giving them a choice:

1. A child can eat a marshmallow quickly.
2. If they can’t wait the allotted time (usually around 15 minutes), they will be rewarded with two marshmallows.

The main goal of the test is to see how long the child can resist the temptation of a nearby reward and, as a result, their ability to delay gratification.

• Watch videos of children struggling with a decision. This is fun and cute.

Preliminary results from the marshmallow trial and follow-up studies show that children who were able to be satisfied had better life skills, academic performance and social and emotional well-being later in life.

However, it is important to note that the following analysis is somewhat removed from the conclusions of the marshmallow experiment. Social Trust, social background, and other factors had a positive effect on success in testing.

Why Managing Your Finances Is a Test for Marshmallows

While actual marshmallow testing may not be an accurate indicator, there is no doubt that planning for future abundance is a recipe for success in life.

Managing your money can be considered the ultimate marshmallow test because it requires many skills and characteristics that are associated with success in the old psychological test:

Systematic delay

Both effective money management and the marshmallow experiment involve the concept of procrastination. In personal finance, delaying quick spending in saving and investing for future goals is important. This aligns with the concept of waiting for a large reward in the marshmallow test.

Self-control

Effective money management requires self-discipline. This includes resisting the urge to make compulsive purchases, sticking to a budget, and avoiding behaviors that may serve long-term financial goals. Self-control is key in both situations.

Long term planning

Like the marshmallow experiment, managing money effectively involves long-term planning. This includes setting financial goals, creating a budget, saving for retirement, and making strategic investment decisions. People who play in these places often show the ability to plan for the future, like children who can wait for the second marshmallow.

• Use a bold retirement planner to help with long-term planning.

Coping with Financial Challenges and Risk

Both marshmallow testing and human capital involve challenges. In personal finance, there are inherent risks that people may encounter, such as unexpected expenses or market fluctuations. Being able to face these challenges, make informed decisions, and stay on track with long-term financial plans is essential.

• Improve your ability to deal with financial challenges by running “What if” scenarios in the Boldlin Retirement Planner.

Financial discipline

Success in managing money requires financial discipline. This includes following a budget, saving regularly, and making informed decisions about spending and investing. Financial discipline is an important factor shared by people who can delay gratification in the marshmallow experiment.

Goal Setting

Both situations involve setting and working toward goals. In the marshmallow test, the goal is to wait for the second marshmallow. With money management, goals can include saving for a home, financial education, or achieving financial freedom. The ability to set and work towards goals is common.

The average social security age: a real-world example of failing the marshmallow test

According to a report by the Boston College Retirement Research Center, 90% of Americans begin receiving Social Security retirement benefits at their full retirement age. In fact, the most popular age to start is 62, the earliest possible age.

In most cases, this is an example of failing the personal marshmallow test.

If you haven’t started your social security, one of the best things you can do to stay healthy is to wait a little longer to wait until at least your normal retirement age to claim your benefits.

• Once you reach the standard retirement age, which is 66 for people born between 1943 and 1959, you can access 100% of your benefits.
• Each year after this, up to age 70, your benefits increase by 8%, meaning you could reach 32% more at age 76.
• If those benefits are taken at a lower age than the minimum age, they are reduced based on the number of months you receive benefits before reaching your full retirement age.

Example: If your full retirement age is 66, the reduction in your benefits at age 62 is 25%; At age 63, about 20%; At age 64, it is about 13.3%; And at age 65, about 6.7%, according to data from the Social Security Administration.

People who claim early give up about $100,000 in benefits over their lifetimes.

Psychic advice for taking the financial marshmallow test and increasing your wealth and security

1. Find the benefits of self-sufficiency

Olivia Mitchell is a professor at the Wharton School of the University of Pennsylvania. He explored ideas that could help people make “the right – the most beneficial – decision about when to start social security.

Mitchell conducted the experiment. He’s offered various kinds of incentives for people to delay the start of Social Security benefits, and the results are pretty interesting:

• When Social Security recipients were told the difference in benefits they could receive if they delayed until age 62 vs. until age 66, 50% of people chose to delay.
• If people need to work while waiting to start benefits, then only 46% chose to delay.
• However, what if researchers promised eligible recipients that if they delayed their claim, they would receive $1,000 a month and a total of $60,000 when they turn 66? Then the willingness to be late rose to 70.3% (no work while waiting) or 55.5% (working half-time while waiting).

So, it turns out that getting a lump sum payment can be a great incentive for people to delay starting social security.

2. Focus on the future question, have a goal

For children who pass the marshmallow test, they focus on the goal of getting two marshmallows instead of one.

If you are trying to make good financial decisions to benefit your financial wealth and security, you may want to focus on your retirement or other financial goals. Are you looking to buy a vacation home? Your kids’ college fund? Traveling around the world.

Keeping your goals and priorities in mind as your future reward can help you make better decisions today.

3. Distract yourself

Some of the children who were successful in the marshmallow test would find ways to distract themselves from the temptation of a nearby reward. Look away from the marshmallow, sing a song, or engage in another activity to take their mind off the temptation.

If you are facing a short-term financial temptation, but need money for long-term goals, it is important to learn to focus your mind on something other than your short-term desires. So, if you really want to splurge on a weekend ski trip but know you’re not in your budget, align your short-term thinking with an activity that’s less expensive and closer to home.

4. Use your imagination

Some children who could wait and get two marshmallows used their imaginations. They thought about the bad and good possibilities of the future and evaluated the rewards and consequences of their actions:

• Disappointment of the researcher or parent when they do the experiment.
• Their ability to see two whole marshmallows.

You can see yourself getting older with less money in the future. Also, you can visualize the joy of reaching a savings goal, enjoying a comfortable retirement, or achieving financial freedom. Thinking about the future is a powerful and proven way to make long-term decisions easier.

5. Build habits

It turned out that many of the children who were holding on to two marshmallows had already developed related delayed sufficiency in their daily lives, making it easier to wait for more marshmallows.

Check out 17 small financial habits for more wealth and peace of mind.

6. Manage emotions

Emotions, especially fear and greed, can cause distress in our financial situation. It is important to understand how emotions play into our financial decisions.

Financial decisions, whether related to investments, budgets, or major purchases, should be based on logical analysis and a clear understanding of one’s financial goals. Emotions such as fear, greed, or panic can drive individuals to make quick decisions that deviate from their long-term plans. For example, during a bullish market, the fear of potential losses can lead a person to sell investments quickly, missing out on long-term gains. On the other hand, excessive optimism and overconfidence can lead to risky investments that may not be in line with one’s tolerance or financial goals.

Learn more about behavioral finance and how you can unlock your brain for more wealth and a better future.

7. Seek Feedback

Having someone to take their part helped some children resist temptation.

Sharing your financial goals with a friend, family member, or financial advisor can also help you be successful with your money. It can be helpful to seek support and encouragement to help you stay on track.

8. Create a plan

Children who had a plan, whether they were distracting themselves or thinking of the marshmallow as something else, were more successful at delaying gratification.

Developing a financial plan that includes a budget, savings strategy, and investment plan is the ultimate marshmallow test. Also, Boldin’s retirement planner is your RoadMap. It can guide your financial decisions and keep you on track.

Get started on your plans today.