Behavioral economics question of the day

By Felix Salmon
July 8, 2009

For reasons which are far too boring to go into, I just bought an expensive (four-figure) item for a friend, using my credit card. He paid me back in cash, which is now burning a hole in my PayPal account. And of course I have a human tendency to want to spend that money now, even though I know a monster credit-card bill is going to be arriving in a few weeks. So the question is: how do I maximize the utility of having use of those funds until the credit-card bill is due, while minimizing the temptation to just go out and spend all that cash?


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If you might be tempted to spend the cash, just pay the credit card company now. Interest rates are too low to make much money in a few weeks. In any event, take the money out of paypal as soon as you can.

Posted by fusion | Report as abusive

There’s only one thing to do… enter a poker tournament.

Posted by Kevin | Report as abusive

I always pay the credit card off early in situations like these

Posted by scott | Report as abusive

Be a patriot and don’t feed the Paradox-of-Thrift beast. Pay 3/4 back to the credit card right away, and buy something nice (domestically made, of course) for yourself with the last quarter.

Posted by DukeJ | Report as abusive

Money laundering, Felix?

I confess that I don’t understand the temptation to spend the money right now.

Posted by Curmudgeon | Report as abusive

buy a car

Posted by otto | Report as abusive

Go to TreasuryDirect and buy a Treasury Bill with a maturity short enough to give you time to get your money back before sending a check to the credit card company. Not only do you take that money out of your hands, you make a small return, and your assets and liabilities are well-hedged. Now if only banks could figure that out…

Posted by Chris | Report as abusive

Is your self-control really that weak?

Posted by jerry | Report as abusive

If this is really a behavioral economics question then the answer is that your default option should have been for the money to go into your 401(k), and you would have to actively prevent that from happening.

Posted by bdbd | Report as abusive

Just spend it!

Posted by Guan Yang | Report as abusive

Learn from the wisdom of footballer George Best, who famously said: “I spent most of my money on booze, birds and fast cars. The rest I just squandered.”

Posted by Murray | Report as abusive

If you want to maximize utility for others, you might try lending it:

–Just a thought.

As a rational economic actor, you should investigate all possible investments, purchases, loans, and other uses of the money (keeping in mind of course your known liquidity requirement in a few weeks) and select the one which maximizes the expected value of your personal utility function. The advantage of this approach is that it will fully occupy your time for the next three weeks, at which time you will pay the credit card bill using the funds, which you have not had time to spend due to your research.

Posted by Ken | Report as abusive

First of all… do you have any real savings? Are you living pay check to pay check? Is it possible you could loose your job and possibly a residence? If so, you have no business gambling on scam investments. Do not spend money that is not yours or that you didn’t earn. It will only come back to bite you and hurt others. Unless of course you are one of those people who think its OK to risk bankruptcy because everyone else will bail out your dead beat @$$. Which is why we are where we are in this ridiculous economy rife with moral hazard.

Posted by Josh | Report as abusive

In giving financial advice, I would need to be paid a small fee. Say, four figures. Just guessing, I’d say my fee would be very close to the amount of money in your Pay Pal account. Should you forward me the fee, I’m fairly certain that I can tell you what to do with that money.

Yeah, behaviorally pay-pal is like almost-spent.

Donate it to charity? That would hurt but be an easy pay-pal out.

If you were in CA you could stand outside a wells fargo bank on pay day and print up a placard to Buy California Pesos (IOUs) on craigslist and then flip them. Should provide a high yield

Good morning Felix, sit on the couch and relax.

I think you are suffering “from cash out phobia”. There is no need to panic or feel overly guilty as most US consumers (and pollies) have the condition.

Lets use ‘reverse opperant conditioning’ here, print your penpal monthly statement on A3 paper and stick a copy on the back of the toilt door and other strategic locations.

Soon your anxiety will abate.

(Felix) Thanks Doc.

Posted by Tony NSW | Report as abusive

Just put something in your shopping cart at your favorite online store, and leave it there until the bill is paid. Window shopping in this manner can be very satisfying.

Give it to your wife.

Posted by Matthew K | Report as abusive

Either make the payment to the credit card early or put it in your savings account where your earnings already go (you do that don’t you?) to earn interest while it waits, and draw it out when the statement arrives. If you really need help with this arduous concept, think of it like that second job you worked to make the extra $ for that big bill you have coming. I don’t see the temptation to spend it, that would be like an irresponsible teenager. I may have to consider whether I want to read an irresponsible teenager’s blog ;)

Posted by ThatSueAgain | Report as abusive

Dear Sir:

Use your money to help me pay for some administrative fees to release one million dollars that are deposited in a Nigerian bank, which used to be owned by a recently deceased former dictator. In reward for your assistance, I will give you 30% of the funds released prior to the date your credit card bill is due.

Posted by Ignacio | Report as abusive

good post, they did a follow up story on this at

Posted by Gram | Report as abusive

Don’t bother putting it in a savings account, unless you get bi-monthly interest. Otherwise, it’ll actually cost you money. Interest isn’t figured by the start to finish balance, only on the initial balance, minus any withdrawls. Any deposits recieve no interest. So, if you have $100 in your account, deposit $50, then withdraw $50, you’ll only recieve interest on the $50 that was there “the whole time.”

go to a casino and do a martingale strategy for up to 5 spins.

30 black/red
60 black/ red
120 black/red
240 black/red
480 black/red

if you hit on any of these you will be up $30 which is a 3% return..

Posted by daniel | Report as abusive

is it too late to buy yen?

Posted by ac | Report as abusive

Don’t buy lottery tickets…and don’t play roulette. Like the lottery, it’s a game of negative expectation rtin/broke-the-new-american-dr_b_225806. html ke-the-new-american-dream/