Delayed gratification

Delayed gratification (Gratifikationsaufschub) is the ability to forgo an immediate reward in order to receive a bigger one later – the basis of every saving decision.

The marshmallow test (Stanford, 1960s):

• Children (aged 4–6) were given 1 marshmallow
• The offer: "If you wait 15 minutes, you'll get 2"
• Only 1/3 of the children could wait
• Long-term study: the "waiters" later had better school grades, higher salaries and less debt

Delayed gratification in everyday finances:

• Saving instead of consuming: spend €500 now OR invest €500 → ~€2,000 in 20 years
• Avoid buying on instalments: save for 3 months instead of paying instalments for 12 months (with interest)
• Savings plan instead of a holiday: invest €200/month instead of leasing a bigger car
• Education: 4 years of study (no income) for a permanently higher salary

Why it's so hard for us:

• Evolution: our brain is programmed for immediate reward (it was vital for survival)
• Hyperbolic discounting: we value €100 NOW more highly than €200 in a year
• Marketing: the entire consumer industry is designed to make you buy NOW

How to train it:

• Automation: a savings plan at the start of the month – you don't even notice you're saving
• 30-day rule: leave big purchases for 30 days – do you still want it then?
• Visualisation: what would €300/month be worth in 20 years? (~€145,000 at 7%)
• Teach children: money box, wish list, saving up for something together