Canada: A nation of marshmallow eaters?

Anyone who frequents this blog knows that I love exploring consumer psychology, group think, and how they change over time.  We know that in order for an asset class to deviate markedly from its long-term measures of fundamental value and become an asset bubble, it requires an element of mass psychology.  This typically manifests itself in a “this time it’s different” mentality.

But the influence of human psychology on the long-term financial well-being of a person or group of people is not limited simply to herd mentality and ‘pie in the sky’ thinking.

In one of the most fascinating studies, children were given the option of either eating one marshmallow now or getting to eat two marshmallows a few minutes later.  It’s a basic test of self control.  You can guess how most children fared.  What is truly fascinating is that when this study became part of a longitudinal study where those same children were revisited 25 to 30 years later, the correlations between their self control early in life and measures of financial success and physical health later in life are staggering.  I’ll discuss one incredible study in a moment, but first, have a look at this:

Isn’t that great?!

Now here’s one study that I found particularly interesting:  A gradient of childhood self-control predicts health, wealth, and public safety.

While the study did not use the exact methodology as the marshmallow experiment, it did construct a highly reliable composite of childhood self-control that they used to place children in one of 5 quintiles (i.e. the bottom 1/5th who displayed the least self-control up to the top 1/5th who displayed the most).  These children were followed for 30 years!  Here’s the most interesting graph from the study:

You’ll notice that increasing levels of childhood self-control are positively correlated with socioeconomic status, financial planfulness, and income, while they are negatively correlated with financial struggles and other financial problems.

Interestingly higher levels of childhood self-control are also negatively correlated with criminal convictions and poor health in adulthood.

As an educator and parent, I wonder how we might teach this self-control to our youth.  It is arguably the most important element to being financially independent.  So how do I teach it?  I also wonder whether overall measures of self-control have remained static over time or whether they have changed.  My perspective from my experience is that children today seem to have less patience and self-control than when I was young….but that is strictly anecdotal.

When it comes to economics, I have even more questions:

  • If self-control is a hallmark of future financial success for any one individual, is it also true of collections of individuals, i.e. countries?  If so, how might we measure our collective level of self control at the national level?  Would we point to record deficits and growing debt levels?  Could we make the case that poor self-control might manifest itself in massive entitlement promises that arguably never should have been made and will represent an increasing financial burden on younger generations….just for the ‘instant gratification’ of an election win?  In general, is the leadership of our country and other Western nations showing increasing or decreasing levels of self-control?  How would we measure it?  What is the implication on the future?
  • If we looked at the personal level, would we look at the proliferation of credit card debt as an example of our collective lack of self-control?  What about the incredible success of the ‘buy now pay later’ marketing?  The falling savings rate (also a product of falling interest rates, I know….)?  The negative savings rate in BC for the past decade?
  • What about our perception of what we are entitled to?  The massive expansion in ‘normal’ house sizes?  Falling average down payment?  The jump in CMHC insurance for mortgages with less than 20% equity to virtually all new mortgages (that insurance ain’t cheap!….but I guess when you have to have it now….) The massive rise in 35 year ams….sure they add six figures to the average total interest payments over a conventional 25 year am, but you save a couple hundred bucks a month!  The jump in consumer spending as a percentage of GDP from 55% to 65% over the past 20 years?  The massive growth in HELOCs since 2000?

At the end of the day, it is difficult to grow wealth without some level of self-control and delayed gratification.  If this is true at the individual level, does it not make sense at the government level too?  This is the message of great personal finance books like ‘The Millionaire Next Door’, ‘The Wealthy Barber’, and the ‘Finish Rich’ series and it holds true in life.

As the Micawber Principle teaches us, “Annual income twenty pounds, annual expenditure nineteen pounds, nineteen (shillings) and six (pence), result happiness. Annual income twenty pounds, annual expenditure twenty pounds…and six (pence), result misery.”

It’s a principal that many prior generations had to learn and learned it well.  It’s a lesson that we would do well to learn….and learn fast.

Cheers,

Ben

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21 Responses to Canada: A nation of marshmallow eaters?

  1. BBC says:

    It would be interesting to test the same children/adults about their levels of happiness, contentment, optimism, etc. I definitly see the value in the ‘self control’ personality trait especially when it comes to finances, etc. but there must be a down side to the extreme personality (too cautious, type-A, over analytical, etc.)?

    As a parent, it seems to me that the most content/happiest people I have met are the ones who fall somewhere between ‘average’ and alittle ‘above average’ in most things…self control included.

    Interesting study none the less….

    Thanks

  2. Tom says:

    What if you had the following proposal, enjoy the marshmallow now or get 1.01 marshmallows a year from now? About one third of us are psychologically inclined to wait for the bigger prize, but its not much bigger any more.

  3. John in Ottawa says:

    These children weren’t bothered by the MSM, parents, and friends constant entreaties to eat the marshmallow before they are priced out of the market forever.

  4. Brad says:

    I practiced Psychiatry for 32 years until retirement last summer. I saw this correlation directly and clearly in a multitude of patients. One of the most remarkable examples is adults with ADD. I’m talking about defintively and properly diagnosed ADD. These adults are often gainfully employed but always have disastrous finances as a result of impaired impulse control and non existant gratification deferral. I’d estimate a 4fold increase of bankruptcy with adult ADD.

    Of course any mental illness correlates with a poor finacial outcome. I’m using ADD as an example of the critical role impulse control plays in life success, whether it’s maintaining a relationship, a job or saving money.

  5. thewordismum says:

    NPR has an interesting article on the changes in play and reduced “executive function” or self-regulation. Here’s an excerpt:

    We know that children’s capacity for self-regulation has diminished. A recent study replicated a study of self-regulation first done in the late 1940s, in which psychological researchers asked kids ages 3, 5 and 7 to do a number of exercises. One of those exercises included standing perfectly still without moving. The 3-year-olds couldn’t stand still at all, the 5-year-olds could do it for about three minutes, and the 7-year-olds could stand pretty much as long as the researchers asked. In 2001, researchers repeated this experiment. But, psychologist Elena Bodrova at Mid-Continent Research for Education and Learning says, the results were very different.

    “Today’s 5-year-olds were acting at the level of 3-year-olds 60 years ago, and today’s 7-year-olds were barely approaching the level of a 5-year-old 60 years ago,” Bodrova explains. “So the results were very sad.”

  6. Brian says:

    Very interesting stuff! I wonder how I would have done as a kid.
    I’m not a parent, but I’m guessing that not spoiling your child will go along way in teaching them about delayed gratification.

  7. Debunking says:

    This study is complete rubbish.
    4 year or 5 year olds have absolutely no concept of time time/lapse and I am sure none of them understood what 15 minutes mean.

    • LS says:

      Someone’s kid likes marshmallows!

      So what’s your explanation for the correlation between that and future behaviour then?

      • ATP says:

        One can substitute marshmallow with a toy item, and the instruction will be: “If you don’t play with the toy until I return, you’ll get one more toy to play with.”

    • TS says:

      Childhood development is where it all starts. Our character or personality traits are formed when we are children. When traumatic events happen as a child it can cause harmful ways of thinking. Fear converts into many forms of thinking which in turn blemishes a personality. For example fear converts to anger and people become bullies. Envy and greed are two other instincts that are driving this housing market. If decisions are fear based there is bound to be trouble whether that be as a society or an individual.

    • ATP says:

      15 minutes mean when the adult returns to the room. Also, one can incorporate time announcement in the design of the study. Thus, the inherent ability to estimate time lapse will not matter.

  8. Debunking says:

    So what’s your explanation for the correlation between that and future behaviour then?

    Correlation is NOTt causation.

    • Agreed 100%….correlation is not causation. We would note that both ice cream sales and drownings are highly correlated, though one doesn’t cause the other. A third factor (warm weather) is pulling both in higher simultaneously.

      That being said, how might we better explain the cause of the correlation?

    • ATP says:

      Not all smokers will suffer from lung cancer in their lifetime, but the variable and outcome are highly correlated statistically.

      True, correlation does not always equal causation, but it doesn’t mean the correlation is of no importance.

    • LS says:

      Brilliant alternate explanation there.

  9. alf says:

    Maybe that genetics plays a role. My two spoiled rotten kids have ended up being very self disciplined.

  10. Debunking says:

    how might we better explain the cause of the correlation?

    one has to look what is the purpose behind such surveys and who pays for them.
    I know for sure that kids at 5 and even 6 have no idea what 15 minutes mean and no idea of evaluating time in general.

    Did they follow their subjects for 30 to 40 years to confirm the results?
    That means that the tests were done 40 years ago.
    Did they have colour tv in Columbia at that time? or was that a recent recording for illustration purposes only.

    • There were several famous longitudinal studies where they followed the subjects for several decades. The one that I highlighted in the post is one example.

      I took it that the video is showing a recreation of one portion of the original experiment.

    • John in Ottawa says:

      The Columbia test was very recent. It is the American tests that were conducted back in the early 80s. The book Emotional Intelligence: Why It Can Matter More Than IQ came out of the studies and for a time everybody was running around talking about how EQ is more important than IQ.

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