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Why the Marshmallow Effect Could Derail Your Retirement Plans

Intelligent Investing

Why the Marshmallow Effect Could Derail Your Retirement Plans

“One must learn to give up momentary, uncertain, and destructive pleasure for delayed, restrained, dependable pleasure.” (Sigmund Freud)

What is the marshmallow test?

The test was devised by Walter Mischel, a Stanford University psychology professor, in the 1960s. While the test has undergone many tweaks over the years, at its essence it is exceedingly simple. Mischel would put a marshmallow in front of a four-year-old and promise them a second marshmallow if they could resist eating the first one for 15 minutes. He would then leave the room and observe what went down.

The prosperity principle

In financial planning, delayed gratification means resisting the temptation to spend money immediately and instead saving or investing for future benefits. It’s about harmonising today’s desires with tomorrow’s needs, like saving money for retirement rather than spending it on non-essential items. Delayed gratification involves self-control and long-term planning.

In our experience as financial planners, one of the most prominent tests investors face is balancing short- and long-term investments. Even the highly educated can find it challenging to align short-term investment decisions with long-term goals such as having enough retirement capital. It takes a lot of discipline to get the balance right.

The long shadow of instant gratification

The long-term consequence of caving to the need for instant gratification is financial stress – one of the worst stresses around. A failure to delay gratification can quite easily result in being unable to retire comfortably and independently. 

The adult equivalent of eating that marshmallow as soon as the professor walks out the door can take many forms. It could mean buying a big house to keep up with the Joneses, splurging on an expensive car, or buying a new iPhone whenever a new version becomes available. 

Minimalism is the new black

Embracing a minimalist lifestyle often starts with decluttering, keeping only what is necessary or brings joy. In fashion, minimalism means having a versatile wardrobe of durable and timeless clothing that can be mixed and matched. The same applies to tech: there’s no point in having multiple gadgets that do the same thing – your phone can double as a scanner, for example. Minimalism can also be as simple as making your morning coffee at home rather than buying an expensive latte on the way to work.

Of course, there is a time and a place for instant gratification, but you don’t want to make a habit of it … Especially if it means missing out on the fluffy, pink marshmallow at the end of the retirement rainbow.

Please get in touch with us if you think you might need to change your financial habits to secure your future..

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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