NEW YORK 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 account.
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 one chunk?
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 changes.
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 Consumer Research.
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 windfall.
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, experts noted.
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 practical purposes.
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)