The Mental Accounting Trick That Makes You Broke

In 2017, an economist won a Nobel Prize and joked he would spend the money as irrationally as possible. Why would the world’s top expert on money mistakes say that? The answer is a habit your brain uses every day. It’s called mental accounting, and it can leave you paying over $1,000 a year in interest while your savings sit untouched. In this video, you’ll see: How Richard Thaler’s mental accounting idea changed economics The Kahneman and Tversky experiments: the lost ticket vs. the lost $10 bill, and the $15 calculator vs. the $125 jacket Why people carry 22% credit card debt while holding savings How tax refunds, bonuses, and “house money” trick your spending Why paying by card makes people bid up to twice as much (the MIT Celtics ticket study) Terrance Odean’s study of 10,000 brokerage accounts, and why investors sell winners too early How the Save More Tomorrow program raised savings rates from 3.5% to 13.6% Practical ways to turn mental accounting from a trap into a tool If you’ve ever felt broke despite having money in the bank, this video explains why. Subscribe for more documentaries on economics, psychology, and human behavior. Sources and further reading: Richard Thaler, “Mental Accounting and Consumer Choice” (1985); Tversky and Kahneman (1981); Prelec and Simester (2001); Odean (1998); Thaler and Benartzi, Save More Tomorrow (2004).