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The Marshmallow Experiment

marshmellows In late 1960s to early 1970s, psychologist Walter Mischel from Stanford University conducted an experiment called “Stanford Marshmallow Experiment”. It was a study on delayed gratification and is regarded as one of the most successful behavioural experiments.

In the experiment, a marshmallow was offered to each child. If the child could resist eating the marshmallow, he was promised two the next round. Experimenters then analysed how long each child resisted the temptation of eating the marshmallow and whether doing so had an effect on their future success. The experimenters followed each child into adolescence and adulthood.

The results showed that the children who could resist the temptation scored higher in tests, had stronger relationships and were promoted more often. They were also generally happier as adults.

But how is delaying gratification going to help our financial well-being for the long-term?

Since time is an investor’s best friend, delaying gratification “buys” time and allows compounding to take place for the long-term.

Using the car example, let’s say you saved $300,000 by buying a cheaper yet functional car. You could use the money saved and invest at around 10% per annum by buying into the SPDR STI ETF (SGX: ES3). Let’s see how the money compounds.

Investing this $300,000 for the next 10 years at a 10% rate of return gives you $778,122 at the end of 10 years. Isn’t that cool?

One could also invest the same amount in proven businesses like Super Group Limited (SGX: S10) and Raffles Medical Group Limited (SGX: R01) and do a huge favour to their financial health.

Be creative in coming up with ways to delay gratification. Even saving $4 a day by buying coffee from the Kopitiam instead of Starbucks will see you save a considerable amount of money by the end of the year.