A $100 bonus from work might go straight into savings, while a $100 tax refund could quickly disappear on a shopping spree. Although both amounts have the same value, people often treat them differently depending on where the money comes from or how they intend to spend it. New international research suggests this curious financial behaviour remains widespread, even as digital technology transforms how people manage their money.
Known as mental accounting, this psychological phenomenon describes how people mentally divide money into separate categories rather than treating every dollar equally. First introduced decades ago, the theory suggests that financial decisions are influenced by personal perceptions and circumstances, sometimes leading people to make choices that defy conventional economic logic.
To investigate whether the theory still holds true, researchers surveyed 5,589 people across 21 countries in the first large-scale examination of its reproducibility and applicability across different populations. Led by Giulia Priolo, Federica Stablum and Enrico Rubaltelli of the University of Padova in Italy, the study also involved Kai Ruggeri, a professor at Columbia University Mailman School of Public Health. The findings were published in the Journal of Consumer Research.
The researchers questioned whether mental accounting would remain relevant in an increasingly cashless society. Direct deposits, automated payments and digital banking have fundamentally changed how consumers receive, track and spend money. These developments made it important to determine whether financial habits identified decades ago still influence modern spending decisions.
Participants completed online surveys involving everyday purchasing scenarios, including comparisons of identical products sold at different stores. Other questions examined whether saving $5 felt equally worthwhile on a $10 purchase and a $100 purchase. Surveys were translated into local languages, with monetary amounts adjusted to reflect economic conditions in each country.
The results largely supported mental accounting theory, although its effects differed between countries. Participants in lower-income countries demonstrated weaker mental accounting tendencies than those in wealthier nations. Researchers suggested that people with limited disposable income may focus more closely on the actual value of money, regardless of how it is presented or categorised.
Interestingly, individual characteristics such as age, education and household income showed no significant association with mental accounting. However, the effects varied according to social circumstances, whether decisions were made for oneself or others, and whether participants were setting prices or evaluating them. These findings suggest that context can be more influential than personal demographics in shaping financial judgements.
The implications extend beyond shopping into healthcare spending. Ruggeri highlighted how people with Flexible Spending Accounts (FSAs) may postpone buying necessary glasses or medicines early in the year to preserve their funds, only to rush into purchases as year-end deadlines approach. Retailers may even charge higher prices for eligible products during this period. The same money shifts from something worth saving to something that must be spent, illustrating how mental accounting can influence decisions in ways that ultimately cost consumers more.
More information: Giulia Priolo et al, The Robustness of Mental Accounting Across 21 Countries, Journal of Consumer Research. DOI: 10.1093/jcr/ucag022
Journal information: Journal of Consumer Research Provided by Columbia University’s Mailman School of Public Health