| NEW YORK, April 14
NEW YORK, April 14 There are many enterprises
out there trying to separate you from your tax refund - from
splurges such as airlines tickets for a celebratory vacation or
for good purposes, like putting it all in a college savings
Deciding ahead of April 15 - the annual deadline for filing
personal tax returns - just how to spend that money, which last
year averaged $2,872 among 113 million American households, is
an annual moral debate.
Save it or spend it? Do a little of both? Change your
behavior next year so you get the money all along instead of in
Some research shows that spending a little bit on an
indulgence can help make sure you save some of it as well.
WHY GET A REFUND?
People get tax refunds, typically, because they had too much
as taken out of their paychecks as taxes throughout the calendar
year, and with deductions and credits, the math adjusts in their
favor. This can be easily fixed by changing the number of
exemptions on a W-4 form, but most people never make any
The types who do - and get no refund or a very little refund
- are the "financial" types, says Valrie Chambers, a professor
of accounting at Texas A&M University in Corpus Christi. These
are typically research-oriented people who make calculated money
decisions and know that they will be responsible throughout the
year to stay on budget.
But most taxpayers are more responsible with a significant
chunk of money than they are with small amounts at a time.
"We all know that saving $50 a month is the same as $600,
but behaviorally, that's not true," said Chambers.
Knowing that small amounts will just slip out of their
budgets unnoticed, more than half of those getting a refund are
using it as a forced savings mechanism, says Kurt Carlson,
director of Georgetown University's Georgetown Institute for
In a recent survey, his team found that 54 percent of the
671 respondents see their refund as money they are owed and
count on, so much so that they file early and typically spend
those refunds well before April 15. On the other hand, the
remaining 46 percent viewed their refund as an unexpected
The other bit of psychology that keeps people from changing
their exemptions is fear of owing taxes at the end of the year.
"People dislike parting with their money more than twice as
much as they like getting a refund," says Ted London, a
California-based specialist in taxation with information
technology consultancy CGI Group Inc.
Consumers can turn a negative into positive by making sure
they do not owe taxes, instead looking forward to receiving some
cash in the spring, says London.
INDULGENCE VS SAVINGS
For those who say they are putting their tax refund into
savings, that can actually mean several different things.
One example could be paying down credit card debt, which is
something Kit Yarrow, a consumer psychologist and professor at
Golden Gate University in San Francisco, finds irrational.
"Credit cards drive me the craziest," she says. Anyone can
typically just adjust their paycheck so they will not get in
debt throughout the year and have to bail themselves out at tax
time, she says.
But Yarrow adds that if you are not continually
overspending, getting a refund and putting it toward some lofty
purpose each year is not a bad plan.
"With interest rates as low as they are, you'd have made $3
in interest on the money if you had saved it," Yarrow adds.
Among those people who intend to put refund money toward
some sort of savings goal, most do not do it exclusively,
This year, tax software provider TurboTax, a unit of Intuit
Inc, even has a joint rebate offer with retailer
Amazon.com Inc, where you can get up to an extra 10
percent if you take your refund in the form of a gift card.
The Georgetown Institute study shows that people tend to
break their refund up into different buckets. About a quarter of
respondents planned to take a chunk of their refund and spend it
on an indulgence, even when the rest of it was going toward
The smaller the refund, the bigger the percentage who were
going to splurge with it, according to the study.
"This suggests that those who get the least back are most
likely to spend a significant portion of it on an indulgence,"
Georgetown's Carlson says.
This is the case for Simon Goodacre, 27, who works for the
Harvard Alumni Association in Cambridge, Massachusetts. He is
expecting over $1,000 back and plans to spend half and save
half. For his splurge, he has his eye on some high-end kitchen
appliances and he already went ahead and bought a new tent
before the money arrived, because it was on sale.
Those most at risk for using up all the money on indulgent
spending are those who plan on putting all of it into a
long-term goal like a retirement fund, Yarrow has found.
"It's hard to just sock that away like it never even got
there," she says.
(Editing by Lauren Young and G Crosse)