You know the economy is doing poorly if the government is handing out free money. But, will that free money help the economy, as the government hopes, or will it be more of the same? Nicholas Epley, a professor of behavioral science at the University of Chicago Graduate School of Business says that calling it a ‘rebate’ as opposed to a ‘bonus’ or ‘windfall’ triggers a psychological need to save the money, rather than spend it.

A rebate implies that you have spent money in excess of the amount owed, so now you’re getting that money refunded to you. Psychologically, this triggers a need to put it back where it came from and rebuild wealth. On the other hand, a bonus implies that you’re receiving extra money, money that you’ve never had before so the psychological impulse is to spend it because it’s not part of your budget.

Studies show this same problem in 2001 when Bush signed the tax rebate legislation. When those checks were sent out, only about 28% of American’s who received them actually spent them. Everyone else put that money into savings. The result was that the economy was not effectively stimulated as the Bush administration had hoped it would be. Unfortunately, Epley predicts that we’re likely to see the same results we did in 2001 – people will be more inclined to save that money, especially with prices on everything going up. The question is would it make a difference what the government called it? Would it be different if the money was labeled and pitched as a bonus or windfall?

This got me thinking. My intentions for my ‘rebate’ check were to save it. So, I pondered on how I’d feel if it were called a ‘bonus’ or a ‘windfall’ and I think my attitude would be vastly different. Every time I get a bonus check at work, I spend it. I feel as though I’ve earned a little extra money, so why not? The regular portion of my check is still broken down as normal, but I do have a little fun with my bonus checks. Conversely, when I mail in rebates and get them back, they immediately go into my savings account without a second thought. That’s not considered fun money to me, but rather money that was originally part of my budget and therefore going back into the budget. So, to me, I think it’s entirely feasible that the name given to the money does, in fact, make a difference.

Now, everyone is different, so calling it a rebate or a bonus may not matter in the long run. But, 28% of American’s spending their checks is a paltry number when you’re trying to jump start an economy that produced $13,841.3 billon dollars in Gross Domestic Product (GDP) as of year end for 2007. Not to mention that a recession in the United States will have adverse affects across the world. It may not have been a bad idea to call this round of rebate checks something else, as long as that ’something else’ triggered a want to spend the money as opposed to saving it.

What do you think?

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2. What Happened To Rebate Checks?
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4. Dear CitiBank: What the heck is an “interest rate rebate?”
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