Knowing who you are can provide insight into your future. Our past and present experiences may affect our future behavior. Some individuals tend to focus on past events to make future financial decisions while others tend to focus on current events. Still others focus on future events. Knowing who you are and identifying your own biases and unique perspective may be helpful as you plan for your financial future.
In 1972, a study at Stanford University, by Walter Mischel, Ebbe Ebbeson, and Antonnet Zeiss attempted to study “Delayed Gratification in Children." In the experiment, children were given the choice of eating one marshmallow immediately, or waiting five minutes in order to receive two marshmallows. These children were followed for the next 17 years. The children who were able to resist the temptation to consume the marshmallow immediately, fared better in life versus the children who could not resist the immediate gratification. There were a myriad of intellectual, psychological, and sociological factors used to determine how the children fared.
The similarities between the marshmallow experiment and consumption decisions give us insight into why some of us are able to save money for future needs and some don’t.
In 1999, Philip Zimbardo and John Boyd used data from the marshmallow experiment in an attempt to link human behavior to our “Time Perspective” and how we make financial decisions. They identified five “Time Perspectives”:
1) Past-positive – has a warm sentimental attitude toward the past. Can be overconfident in their expectations of
future results (expects higher returns than are realistic in the current environment). Explains bad outcomes due
to bad luck.
2) Past-negative – has a generally negative view of past. Tends to be adverse to risk and focuses on inevitable bumps
in the road. Very conservative and usually will not invest in stocks. Likes guarantees.
3) Present-hedonistic (desires to maximize pleasure) – tends to have a “devil may care” attitude toward life and
time. Has little concern for future consequences. Lives in the moment. Tends to live beyond their means and is
unwilling to plan for the future.
4) Present-fatalistic – has a helpless and hopeless attitude toward the future. Participates in risky lifestyle. Cynical
about planning for the future.
5) Future – Sets goals and rewards self when goals are met. Many times too busy to lay out a plan for financial
future. Doesn’t react well to changes. May be resistant to hearing other perspectives that differ from their own.
Gets stressed out.
There is no one “IDEAL” time perspective. A blend of past-positive, present-hedonist, and future may be an optimum profile for financial success. Focusing on the positive aspects of the time perspectives and working with a talented financial planning professional who understands your biases can be very rewarding. Identifying your time perspective and your spouse’s time perspective can also be helpful to your family as you plan for your financial future. Overcoming biases, understanding weaknesses, building on strengths, and working with a professional advisor may be your key to financial success. Take some time to sit down with your Western Fraternal Life agent and let us help you plan for your financial future.
CFP®, FLMI, Annuity Product Manager