Back in 1972, Walter Mischel, a professor at Stanford University conducted a study that continues to shape our thinking about human behavior to this day. He put a marshmallow in front of children, told them they could have another one if they waited 15 minutes without eating the first. Then he left the room. His subsequent findings, and their implications, were fascinating.

In follow-up studies, Mischel found that the children who were able to delay gratification and get the second marshmallow were found to achieve better results in all areas of life - from health to academic achievement.

The marshmallow test is a rare example of a piece of scientific research that has broken through into popular culture, becoming a shorthand for the value of self-control. But why does this elementary lesson in self control continue to matter?

In a society of instant gratification, self-control is a scarce and valuable trait. When you start to look at how self-control impacts our saving and spending habits, it becomes clear that understanding our marshmallow minds could be the key to better financial health.

Spending v. Saving: One Marshmallow Now or Two Later?

With access to money through credit cards and apps that make spending as easy as tapping a screen, self-control is more important than ever when it comes to your personal finances.

When your paycheck lands in your account at the end of the month, you are effectively faced with your own real life marshmallow experiment. You can eat the first marshmallow and splurge, or wait for that second one and put a chunk of your income away to save for a financial goal down the line. The problem is that you’ll have to wait longer than just 15 minutes to see a return on those savings. And that really hurts.

This pain makes sense from a behavioral perspective because there are so many things you could do with that money in the moment that have an immediate reward. When you buy those new sneakers you’ve been eyeing or splurge on five new houseplants, you feel the benefits of those purchases almost instantly.

But when you save, it’s very hard to connect to the benefit of your actions because the payoff exists in the future—potentially even years away. This means you see yourself giving up something very attractive now, which makes whatever you're saving for in the future—a car, a vacation, a loan payment—feel kind of ‘meh’ in the present.

Your Solution: Reward Substitution

So how do you force yourself to do something unpleasant but necessary like saving money instead of spending it? How can we encourage ourselves to give up that first marshmallow for two in the future?

One effective solution is reward substitution, which involves treating yourself now for making a step towards a future goal so you can feel the benefit in the present. Think of it as treating yourself for not eating that marshmallow today.


When it comes to your personal finances, coupling the promise of a future reward with an immediate treat has been applied effectively in a number of situations, including prize-linked savings accounts (PLSAs)

Also known as lottery-linked deposit accounts, PSLAs reward consumers who save by entering them into sweepstakes and giving them hope of a big pay-off. It may sound funny, but wouldn't you rather save if you knew you had a chance to win a prize each time you put some money away?

When Walmart launched Prize Savings on their prepaid MoneyCard along with Commonwealth and Green Dot Bank in 2016 they rewarded customers for each dollar saved with an entry into monthly drawing from 999 prizes of $25 or one $1,000 grand prize.

Several years later, more than $2 billion has been moved through Walmart’s program, with users seeing their savings increase by a remarkable 35% on average.

These programs effectively short circuit the marshmallow problem by rewarding you with something very attractive in the present - it’s like waiting for the second marshmallow while rewarding yourself with a donut.  

So how can you apply this to your own life?

  1. Commit to a savings goal

    Just as you wouldn’t expect to get in your car and start driving without knowing where you’re going, you need a savings goal to maximize the chances of getting there. Once you’ve chosen an amount and tied it to a goal (saving for a house, a trip, a car or some combination of all the above) break that down into a monthly target.

  2. Automate the savings

    Once you’ve broken down your savings goal into a monthly target amount, automate the payment by setting up a direct debit from your checking account to a savings account. This takes the decision out of your hands and ensures you won’t blow all that spare cash on matchas, takeout or online shopping.

  3. Treat Yourself

    Set up a notification on your phone or calendar for the day the savings payment leaves your checking account and set aside a small amount to treat yourself. Whether you want to take yourself to the movies, go out for dinner or buy yourself something special, make sure you’re doing something, within reason, that will encourage that behavior in the future.

Summing Up

So there you have it. Self-control is hard in our world of instant gratification, but it’s more important than ever to build good routines when it comes to personal finances. Financial health has as much to do with your personal habits as it does your investment portfolio and account balance. To make sure you exercise the self-control needed to save, apply reward substitution by setting a savings goal, automating it and treating yourself. Then sit back with a coffee and a donut, and watch your marshmallows grow.

Getting started with Donut

Donut is available in the United States and can be downloaded from the App Store or Google Play Store.

Real talk 🚨

Any saving and investment strategy puts your capital at risk.

The above information is intended for informational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.