I am fascinated by the field of behavioral economics, which is a good thing since my job at Military Saves revolves around motivating service members to save. Recently, while researching something else entirely, I came across an interesting chapter on mental accounting — “Addition by Division: Partitioning Real Accounts for Financial Well-Being” — that I think not only sheds some light on why saving can be such a struggle, but also offers some concrete steps that we can take to improve saving success.

According to the authors of this piece, a group of marketing and behavioral economics professors, mental accounting is how “consumers rationalize expenditures and enhance self-control.” The term derives from real-world accounting and, simply put, is how our brains organize how we spend money. Just as financial institutions divide up our accounts into subaccounts like savings and checking, so too do our minds.

Knowing that our brains work this way can have real world implications for personal finance. For example, having earmarked accounts – both in our minds and IRL (In Real Life) can be extremely beneficial.

Earmarking Your Territory

Earmarked accounts can combine something very old school – the “club account” concept – with something very new school – online banks with low or no fees that allow for multiple subaccounts. Since, according to the authors, consumers generally find immediate use of money (spending in the here and now) more compelling and concrete than putting away money for later, a named, specific account can be a powerful tool to stimulate saving.

It is much more exciting to save for “My Cruise” or “Gabi’s Education” than in a traditional, unnamed savings account. When everything goes into one pot, it is also very tempting to use that money for other purposes.

There are several apps out there, both free and pay, that now do this for consumers – saving small amounts here and there and dumping them into earmarked accounts.

Fighting the Pain of Paying

One benefit of having separate accounts is that it allows a measure of security for those tightwads who feel the pain of spending. I have an account, funded by a small monthly deposit, that is literally named “Lila’s Discretionary.” It gives me the freedom and peace of mind to buy “wants” like a cappuccino or a magazine.

Out With the Old, In With the New

One of the most interesting points that the authors of this chapter make is that the more consumers save, the more they can experience diminishing motivation to save. For example, it is much less satisfying to contribute $5,000 to an account that has $100,000 in it than it is to contribute the same amount to an account with just a few hundred dollars in it.

The suggestion is to have “old money” and “new money” accounts, establishing a new account every few years or when reaching a certain dollar amount.


While behavioral economics is not some sort of magic formula that can cure the current savings crisis, it is definitely a tool in the financial counselor’s arsenal. I find that it not only helps explain why savers behave the way they do, but it also provokes deeper thinking about possible solutions.

What are some behavioral finance tricks you’ve found useful with clients or in you own life?

Guest Contributor: Lila Quintiliani, AFC®, Military Saves Program Manager

America Saves invites you to join their partners and stakeholders to discuss and strategize how to attack the nationwide savings crisis and make a tangible impact in the financial health of everyday Americans. Your voice is critical!

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