How Spending More Is Like Eating More
Illinois’s Senator Everett Dirksen reputedly said, ” A billion here, a billion there, and pretty soon you’re talking real money.”
For the federal budget, it is easier to add to the deficit through assorted unexpected expenses. Individually, we do the same thing when we spend and when we eat.
What We Spend and What We Eat
Many of us don’t budget for the unexpected. Yes, we know we will always have a broken TV, a concert for which we buy the best tickets, a wedding present. Similarly, perceiving a home renovation as a one time phenomenon, we say yes to more expensive tile. We feel comfortable removing the wall between two rooms. When unique items arise, we not only accept surprises but are pleased to spend more on them.
Somewhat similarly, when given a box of homemade cookies, we happily add many more calories to our daily diet. With other unique eating occasions like special dinners or what we can nibble in an airport, we respond in the same way.
Like the unique situations for spending, with food too, we don’t budget in advance or compensate for it afterwards. They just add to our spending and our pounds.
Our Bottom Line: Mental Accounting
Behavioral economists can explain our seemingly impractical decisions.
Called mental accounting, to make the world more manageable, we organize our spending into different buckets. We might have a rent bucket, a unique situation bucket, a grocery bucket. That unique (non-recurring) bucket has also been (technically) called the “What the Hell Effect” bucket. Summarizing our behavior, a University of Chicago scholar tells us that these “narrow brackets” define the psychology of our spending.
Returning to where we began, I wonder if it also explains why many of us felt comfortable spending trillions of federal dollars..
My sources and more: Yesterday’s nine mile walk (yes, a long one) was much more pleasant because of the Hidden Brain podcast on Budgets from which all of my facts came. (Also, the Dirksen website says they could find no evidence that the Senator said the billions quote.)Originally published at https://econlife.com on May 16, 2022.