On Easter morning my daughter, Lilly, who is 4 years old, awoke with great anticipation as every child does. Knowing the Easter Bunny came the prior night, she ran downstairs to hunt for her basket and was thrilled to find it. She turned to me and said, “Mommy the Easter Bunny left me a basket full of c-AN-dy,” stretching the word out for emphasis. I know, I know, I’m not winning any parent of the year award by filling the basket with candy but, hey, it’s a special occasion. So then she said, “Come on Mommy let’s go upstairs and lay out all of the candy and you can tell me about each one.” So we did this and she didn’t even ask to eat a piece. I was blown away! When I asked if she wanted anything she said, “No I’ll wait until after breakfast when I can eat more than one piece of it without getting a belly ache,” which is often my reasoning when telling her she has to wait until after breakfast for a treat.
Her Easter morning restraint reminded me of the study done on deferred gratification by a psychologist at Stanford in the late 1960’s. Here’s a great YouTube of what came to be known as the Marshmallow experiment. In the experiment, each child was offered a marshmallow now or, if they could resist eating the marshmallow, they could receive two. The children that participated were later studied to determine if this resulted in future success. In fact, it did. The children that waited showed higher SAT scores, had higher self-esteem, and weren’t so easily frustrated.
Deferred gratification is a very important life lesson and one of the keys to financial success. In order to meet future financial goals, something has to be given up today, but that doesn’t always have to be difficult. Here are a few easy steps:
- Avoid the temptation of spending money now, for example, not taking that extra vacation this year in order to make my Roth IRA contribution (which is still painful for me even though I know it is the right thing to do).
- You need to find an alternative because you still have to make life worth living in the present. So for me that ends up being a local “staycation” instead of that big vacation.
- It is always important to focus on the reward, which in my case is hopefully a comfortable retirement, or in my daughter’s, lots of candy after breakfast.
While I’d like to take credit for my superior parenting skills by pointing out my 4 year old grasps the concept of delayed gratification better than most adults, I don’t think I can. That one she came up with all on her own. And it is a lesson that we all need to incorporate into our lives to become better savers and investors.
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.