From same day delivery, to fast loading web pages, the demand for instant results is ever-growing, and has gradually worked its way into every part of our lives. Since e-commerce took off during the 90s, we’ve become increasingly accustomed to obtaining things in a matter of moments. In fact, remembering a time when products, services or experiences weren’t instantly accessible can prove to be a challenging task.
The fact technology allows our every need and want to be catered to almost immediately has, however, intrinsically changed our day-to-day expectations and spending behaviour. As a society, we’ve become less patient and now prioritise immediate rewards over more long-term ones1.
We recently carried out a survey in conjunction with Future Foundations, and the results mirror the statement above. The findings indicate that, in spite of the fact that almost one in five (18%) people in the UK say their finances make them feel nervous, over half (54%) also admit to treating themselves whenever they want.
Professor Darren Duxbury from the Newcastle University Business School, and the Behavioural Research in Finance (BRiF) group, tells us that “psychological factors influence our attitudes towards consuming, saving or borrowing” and suggests that “we need to be aware of these to help change attitudes and behaviours.” In order to better understand how instant gratification is affecting our finances, we investigated why people chose this over more long term rewards, and looked into ways in which people can avoid temptation.
Instant gratification, as the name suggests, is the need to feel satisfaction and fulfilment without delay. Essentially, it’s getting what you want, when you want.
According to a number of psychological models, people act upon what is called the ‘pleasure principle’. In psychology, this is described as people’s instinctive drive to pursue pleasure in order to fulfil their needs and wants2. And, through technological advancements such as the internet, pursuing pleasure has never been easier. However, our relentless pursuit doesn’t stop online. Priority boarding, fast-track tickets, vending machines, self-service checkouts; the ways in which we can gain instant gratification are never-ending.
The iconic study, now inherently associated with temptation and willpower, began during the 1960s at Stanford University. Professor Walter Mischel sat a group of young children in front of a marshmallow for 15 minutes. The children were told that, if they could resist eating the marshmallow, they would receive two at the end of the quarter hour. Predictably, some children caved and ate the marshmallow. On the other hand, some managed to fend off temptation and received the greater reward at the end of the time period.
Over the course of the following four decades, Mischel carried out follow-up studies and found that the children who had resisted temptation exhibited more positive traits later in life. These children displayed higher self-esteem, earned better grades and were also less likely to be obese or abuse substances.
The experiment demonstrated that the ability to delay gratification, or forfeit an immediate reward for a potentially larger one in the future, plays a crucial role in the level of success people will experience in life.
So, how can we do this?
Ultimately, resisting temptation revolves around self-control. However, while self-control is not physically impossible, applying it can certainly be difficult. Researchers have argued that people only have a certain, finite amount of self-control3. The more people put themselves in situations where they need to practice self-control, the less self-control they’ll have. Presumably, many would think that the simplest solution would be to avoid these situations entirely. But in our society of never-ending temptations, completely eradicating these can be extremely difficult.
Our survey found that more than a quarter (27%) of Brits think of their spending habits as impulsive, indicating that many acknowledge their need for instant gratification. However, impulsive spending may be one of the main causes behind people spending money they simply don’t have. More than a third (35%) either have a credit card or overdraft, with the percentage of people who are debtless a minute 6%.
As the marshmallow experiment illustrates, the ability to practice self-control can be extremely important in many areas of our lives – and finances aren’t an exception. Albeit difficult, there are ways in which we can avoid falling victim to temptation.
A commitment device can be described as a choice that a person makes in the present, which limits the choices they can make in the future – normally in order to control impulsive future behaviour and to force them to behave in a manner that will aid their long-term goals.
In terms of savings, for example, some people avoid temptation by setting up a standing order from their bank account to a savings account on each pay day. This means money is put aside, and people barely notice it’s gone.
A reward substitute is essentially a reward that people can give themselves in the present, to help them achieve their future goals.
Gratification, rewards and pleasures that are experienced today, are considered far more important and central than ones experienced in the future. Often, people discount future rewards in favour of immediate ones, simply because these are too far off in the future. However, finding a reward substitute could help justify the wait.
One way people can use reward substitution to cushion the blow of ‘losing’ money in the present, is by rewarding themselves with something smaller they love each time they save a certain amount of money.
Changing our perspective can also help resist temptation. Duxbury indicates that “people think of goals that are close in time in concrete ways, with an emphasis on “how” to achieve their goals, while goals distant in time (such as retirement) are seen in abstract ways, with an emphasis on “why” they are important.” An abstract outlook, with a focus on why, “promotes self-control and inhibits temptation,” keeping people on the right track.
Duxbury’s own research, with Dr. Karim Aldohni, examining attitudes to high cost, short term credit (HCSTC) suggests this to be the case. Looking at ways of making people think differently about the opportunity costs associated with use of HCSTC (i.e. borrowing from future income to fund current consumption), Duxbury finds:
Individuals thinking about why they are saving, combined with a promotion focus on the positive outcomes of doing so, indicate they are less likely to use HCSTC.4
How much we spend, save or borrow are interlinked sides of the financial decisions we face on a continual basis. Choosing not to borrow today to fund current spending frees up future income, making it easier to save in the future for important life events.
The late English economist, Nassau William Senior, said that “to abstain from the enjoyment which is in our power, or to seek distant rather than immediate results, are among the most painful exertions of the human will.”
However, while our world is one congested with temptation, practicing self-control could prove to be the key to achieving our future goals. Whether we do this through commitment devices, reward substitution, changing our focus or simply by avoiding certain situations, we can all find ways of delaying gratification in order to prosper in the future.
Although being able to positively associate with our future selves could help us save smarter, many lack empathy with who they'll become. We investigate the psychological reasons behind our behaviour.
The second article in our two part series looking into the connection between the present and future self. This step by step guide advises on how to connect with your future self to save smarter.
Duxbury, D. and Aldohni, K. “High Cost Short Term Credit (HCSTC): Can users’ attitudes be changed?”, Newcastle University, work in progress
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