Mental Accounting Bias!

Mental accounting bias occurs when investors place different values on the same amount of money, based on subjective criteria. For example, investors may set aside money in their savings account for a vacation or holiday. But at the same time, they are carrying a high interest debt. The higher interest on this debt will erode lower savings account interest one that is set aside for the vacation. People like to spend money on risky investments or leisure activity like a holiday if they perceive that money to be ‘extra or surplus’. It is therefore important to be aware of mental accounting bias to make better financial decisions.