There is a psychology behind how people spend money, and most people know nothing about it. With tax season now upon us, financial planners and experts are looking at this again and sharing their insights about it. What they want to do is educate the average consumer into knowing we spend more when we get money we had not expected and save more when we see our hard earned money come back our way.
These are two of the mindsets people have concerning their refund checks: It is a windfall, or it is a payback of their own money they paid throughout the year. The people who see it as a windfall spend their newfound wealth as a lottery winner would. That is, freely and without hesitation. The ones who see it as their own money coming back to them do one of two things: Make a few necessary purchases and save the rest, or save it all.
Some people would argue that saving it all does nothing in helping to stimulate the economy. And they would be right. But another argument, just as valid, says that saving money helps boost the confidence of the people who do it. Meaning they are more confident in their own financial stability. These people will pump money back into the economy, but they do so slowly and with thought.
Either way, it will be up to the consumer to do with their refund as they will. The one’s who spend it without thought may initially help the economy, but they may regret all that spending in the months to come. The one’s who spend it sparingly may not make friends with the economy initially, but they will end up feeling better about their own financial standing.
Neither way is a wrong way as they both end up helping the economy, eventually. America is doing better than it has in a long time because of consumer confidence. We should all be mindful of that in the coming weeks as those refund checks keep coming.