Imagine you receive a lottery ticket worth $100 in a birthday card. Are you more likely to spend that money or to stash it in your IRA? Most people would spend it, and that’s because of mental accounting.
Mental accounting is the habit of assigning different jobs to money depending on its source. This habit of mind can work for us or against us, depending on how we use it.
Where Does Mental Accounting Show Up?
Mental accounting is the term we use to describe the way we assign different meanings (and therefore purposes) to money depending on how it came into our hands.
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