mental accounting

Spend $200 on a great Christmas gift at the big box store and get a $50 gift card. Sounds like a great offer. It may, in fact, entice you to spend more than you normally would, warns a marketing expert at Washington University in St. Louis.

It’s tax-time. For many people that means handing some hard-earned money over to Uncle Sam. But for others tax time is refund time. Theoretically, that refund is money you’ve earned as a part of your salary, and should be accounted for and spent like regular income. However, most people view it as “found money” and generally find a way to justify spending it on something they didn’t necessarily need. According to a professor of marketing at the Olin School of Business, people mentally credit their refunds to specific budgetary accounts to justify spending it on desirable luxuries. The result is people end up spending too much, making it harder to pay other, more essential accounts.