Consider this. You receive Rs 2.5 lakh by the end of March. How would you spend it? Your might say that the money would be used to meet your current consumption requirement. But if you typical person, your spending decision would depend on the nature of the cash flow, not just on the amount received. Why?

Suppose this money was the year-end bonus from your employer. Your belief that it is “hard-earned” money will lead you to most likely use it on either maintaining your current standard of living or improving it. You may, for instance, pay down your mortgage. Or invest the amount for future consumption.

Classifying cash flows

But what if the cash flow were prize-money from a lottery? Chances are you will want to splurge a significant part of the money, if not all. Why? Lottery is considered windfall and such money is mostly spent on aspirations goods or luxuries.

Our spending decisions are, thus, driven not just by the amount we have but its source as well. This is, perhaps, why we spend more at discount sales. Suppose you walk into a store to buy a mobile phone. You realise after entering the store that there is a 20 per cent discount on phones, which translates into a saving of Rs 5,000 for you. Would this offer change your spending behaviour inside the store?

Consider this. A study was conducted among college students attending a basketball match. One group of students was told before the match they would be given some money during the match. The other group was not told beforehand, but was given the same amount of money during the match. The group that received unexpected money spent more than the other group and importantly, more money than they had received.

If such studies are anything to go by, you are likely to spend more than Rs 5,000 of your “savings” at the mobile store! This is, perhaps, one reason why governments offer tax-rebates to boost consumer spending in the economy.

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