How Mental Accounting Manipulates Consumer Behaviour: Evidence, Mechanisms, and Implications

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1. Introduction

Classic economic models assume money to be fungible: a rupee is a rupee, independent of its history. Behavioural evidence, however, views it through a different lens. People earmark “vacation money,” treat bonuses as “fun money,” and let yesterday’s trading gains invite today’s risk. This cognitive bookkeeping—mental accounting—has durable consequences for spending levels, intertemporal choices, and portfolio risk. Since 2020, the payment landscape has shifted rapidly toward digital wallets, contactless payments, and buy-now-pay-later (BNPL), creating a natural test bed for mental accounting’s impact at scale. This paper integrates fresh evidence to answer three critical questions: (1) What mechanisms link mental accounting to consumer behaviour? (2) What do recent data say about magnitudes? (3) What are the practical implications?

2. Mechanisms

2.1 Pain of Paying and Temporal Decoupling

When payment is psychologically distant from consumption, the “pain of paying” attenuates, loosening spending restraints. Neuroscientific and behavioural research shows that credit cards reduce this pain by decoupling the moment of purchase from the moment of settlement, encouraging higher spending and different choice architecture. Recent neuroscience and behavioural experiments corroborate this decoupling pathway in modern contexts (e.g., mobile, contactless).

2.2 Mental Labels and Categorical Budgets

Consumers maintain mental “ledgers” (savings vs. discretionary; gift cards vs. cash). Funds bundled as “store credit,” “rewards,” or “gift” are interpreted as abundant, inviting higher category-consistent spending and lower redemption vigilance. Store cards can even anchor subsequent price expectations and generosity within the issuing store’s account.

2.3 House-Money and Windfalls

Gains that feel unearned (lottery, casino, market run-ups) are often treated as separate accounts, prompting looser risk constraints. Recent work disentangles windfall effects (which reliably raise risk tolerance) from the narrower house-money effect (more contingent on task structure), refining where and when each operates.

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3. Evidence on Behavioural Consequences

3.1 Cashless Payment Elevates Spending

A 2024 meta-analysis concludes that cashless methods tend to increase consumer spending relative to cash, with moderators including clarity of the purchase and macro conditions. It's also noted that the effect has weakened over time, quite likely due to consumer adaptation, but remains economically meaningful. Complementary 2024–2025 experimental and summary evidence indicate that mobile/credit payments not only expand basket size but can shift choice patterns (e.g., reducing the compromise effect), consistent with mental-accounting pathways via lower payment pain and blurred category boundaries at checkout.

These findings are part of a larger shift—the fast-growing use of digital wallets and alternative payment methods. Worldpay’s 2025 Global Payments Report tracked online BNPL spend soaring from ~$2.2B in 2014 to ~$342B in 2024, alongside digital wallets’ run toward nearly half of all sales online and at POS by 2027—macro shifts that amplify decoupling and budgeting-by-app.

3.2 Gift Cards, Loyalty Balances, and Breakage

Gift cards and loyalty balances create category-bound money that feels common and insignificant. The result is twofold: (a) elevated discretionary spending within the issuing brand’s domain and (b) partial or complete non-redemption (“breakage”). Starbucks disclosed $1.85–$1.87B in unredeemed stored value around FY2024–FY2025 and recognised ~$187.6M in annual breakage revenue—a concrete footprint of mental accounting in practice. Industry trackers estimate the global gift card market at approximately $1.24 trillion in 2024, with continued growth expected.

Beyond headline balances, redemption itself reflects mental categories: many cards are used within six months, yet a meaningful tail remains unredeemed—persistent “permission slips” to spend that some consumers never cash in.

3.3 BNPL and Deferred-Payment Frames

Buy Now, Pay Later (BNPL) continues to reshape how consumers perceive and manage spending. A 2024 study by PYMNTS revealed that nearly 50% of Gen Z had used BNPL in the past 12 months, compared to 47% of Millennials, reflecting the method’s deepening reach into younger demographics. Another 2025 report from Scoop Market shows Gen Z making up 47.4% of BNPL users, with Millennials close behind at 40.6%.

These figures underscore BNPL’s mainstream adoption among younger cohorts. Especially for Gen Z, BNPL signals both expanded spending power and psychological decoupling of payment, enabling elevated basket values while deferring perceived financial strain.

3.4 Windfalls, Stimulus, and Debt Buckets

Policy windfalls offer a natural experiment on earmarking. A 2023 U.S. Government Accountability Office analysis finds that stimulus payments were, on average, used to raise credit-card payments by $20–$61 following disbursement, and advance child tax credits added ~$37 per month—evidence of consumers channelling windfalls into debt-reduction mental accounts, at least transiently. Experimental work in 2023 similarly reports that windfall gains robustly increase risk tolerance, while a pure house-money pattern depends on specific task features (e.g., skewed lotteries, multiple rounds)

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4. Boundary Conditions and Nuances

Adaptation and Payment Familiarity. The cashless effect’s shrinkage over time suggests consumers partially adapt to digital frictions, but not quite fully; spending uplifts persist, especially in lush and luxurious contexts.

Medium Matters, But So Does Framing. Store-branded credit cards can actually reduce willingness to pay within the store in subsequent visits since consumers mentally tally future invoice pain to that retailer’s account—flipping the generic narrative that “Credit cards increase spending” and revealing how account labels interact with the method.

Risk-Taking Depends on History and Task. Windfalls prime risk, but a generic “play with profits” rule is not universal; structure and distribution of outcomes do matter, informing how platforms design streaks, cash-out prompts, or “use your gains” nudges.

5. Managerial and Policy Implications

For firms, the central insight is that consumers don’t treat money as fully fungible—they categorise and frame resources in ways that systematically influence expenditure. So pricing strategies, promotional framing, and loyalty schemes should be in sync with these cognitive tendencies. For instance, discretionary bonuses or windfall income is usually disproportionately directed toward lush consumption, while identical amounts framed as bill rebates or savings incentives are allocated more cautiously. These patterns, if recognised well enough, help managers design frameworks effectively, capturing consumer engagement and enhancing firm's performance.

From a policy perspective, mental accounting displays vulnerabilities in consumer decision-making that warrant regulatory attention. The tendency to overspend via credit cards, underweight long-term savings, or misinterpret BPNL schemes is a giveaway to how cognitive framing can have adverse financial outcomes. Policymakers could follow through with interventions such as stronger disclosure requirements, introducing friction in high-risk spending channels, or initiating more structured incentives to encourage windfalls toward savings or debt repayment. These measures acknowledge bounded rationality while simultaneously promoting consumer welfare.

By accounting for the cognitive architecture of financial decision-making, managers and policymakers create systems that operate even more effectively within the constraints of real human behaviour, rather than idealised rational models.

6. Conclusion

Post-2020 data confirms that mental accounting significantly influences consumer behaviour. Cashless and deferred payments reduce the pain of paying and increase spending; gift cards and loyalty balances create pliable, sometimes perishable budgets; windfalls nudge risk-taking, though with important contingencies. For firms, mental accounting is both a lever and a responsibility: it can enhance conversion and loyalty, but without transparency and safeguards, it can also lead to overextension and regret. For policymakers, targeted disclosures and data collection can help align the evolving payment rails with consumer welfare. Fungibility may be axiomatic in economics; in the mind, money still wears labels—and those labels move markets.

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By Paurvi Bhansali

Paurvi Bhansali is an economics enthusiast, keen on sparking debates and collecting insights on consumer trends, behavioural economics, and geopolitics. She’s a writer, blogger, and poet by the alias @maketheecho.

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