Delayed Gratification

To test the theory of a person’s ability to delay gratification, the Stanford Marshmallow Experiment (1972), conducted by Prof. Walter Mischel, at Stanford University, California, studied a group of four-year-old children, each of whom was given one marshmallow, but promised two on condition that he or she wait twenty minutes, before eating the first marshmallow. Some children were able to wait the twenty minutes, and some were unable to wait. Furthermore, the university researchers then studied the developmental progress of each participant child into adolescence, and reported that children able to delay gratification (wait) were psychologically better adjusted, more dependable persons, and, as high school students, scored significantly greater grades in the collegiate SAT exam.   –  SOURCE:  Wikipedia

I wonder how a child might benefit if we replaced the marshmallow with a stock position and required a waiting period of forty years before they sold it.  Of course, with market risk inherent, we could not live on the promise that the share quantity would double by simply waiting forty years. Maybe it would triple, quadruple, or grow exponentially, as many have.  Or, maybe it would go to zero like Enron, WorldCom, Lehman Brothers, Adelphia, Pets.com, and several others have.

But does risk really matter to those who exercise delayed gratification?  The critical element of the marshmallow experiment had nothing to do with the first marshmallow, and not as much as you may think it had to do with the second marshmallow.  It had everything to do with the discipline process of waiting for those twenty minutes in between.  The kids who showed restraint were better adjusted, more dependable and scored better on exams later in life.  Conversely, the kids who ate the first marshmallow experienced greater struggles later in life because they couldn’t wait to realize the benefits of waiting.

Translate marshmallows to savings goals or stock ownership, and you would likely realize the same results.  Kids who can save money regularly to meet short-term goals or hold onto stock positions without selling for long periods of time will likely be better adjusted, more dependable and smarter than those who can’t.  They will also be financially independent while the others will struggle to make ends meet when it counts later in life.