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The Value of Having a Play Account

Having moved to Australia I’ve come into a very different mindset towards money. People seemed oddly informed here about managing personal finances. I quickly realised why that was: the Barefoot Investor. Now you can say about this book, or even its author, whatever you like, but there’s some good bits in there. One of those golden nuggets of advice, whether he knew it was behavioural scientifically supported or not, is to have separate accounts. One for bills and the non-fun stuff, and one for the more fun stuff. It is sound advice.


Every behavioural scientist who’s worth their oats knows mental accounting: the idea that we divvy up our money into “accounts” or “jars” depending what we want to (or have to) spend it on. There’s a jar for rent, a jar for groceries, hopefully a jar for savings and a jar for much more fun stuff. There’s all types of issues with these mental gymnastics and we don’t tend to be particularly good at it either, but it’s what we do. Well, according to Barefoot, we’re better off if we leave the mental gymnastics at home and set up the systems to take over. One account (and associated payment card) for all the stuff that we HAVE to pay for. These payments don’t need to be in-store purchases (groceries) either, but can also be direct debits (rent, insurance, utilities etc.). All of that needs to be set up on a single account, preferably the account your wage comes in on. Bonus tip: savings should be handled as a bill as well (“Pay Yourself First”) and having a savings account linked to your bills account will make this a lot easier. You can set this up as a direct debit as well – preferably on or one day after the day you get your wages paid in (assuming any regularity in income stream). Now the second account (or the third if you count the saver) is where it’s at. This is the fun stuff. I have to mention that you can’t just move all your money on here willy-nilly. Barefoot did assume that before we build this structure, we’d have some type of insight into the division of bills and “funs”: you need to know how much you make, how much you have in bills (make sure you also count the irregular ones or the less frequent ones) and how much you want to/can save. All of this tallied up then gets subtracted from your income and what’s left is the fun account. Now the fun part of the fun account is that it doesn’t matter when and where you spend it. If you are the type of person that prefers having a single, all-out shopping trip to spending bit by bit, well, the fun account can do that, granted that there’s enough money in there to go all out on your level. Two accounts (three if you count the saver) and their accompanying cards. That’s it.

So why does this work? Mental accounting works in theory, but it doesn’t really work that well in practice. Most people assume they know where there money is going, but as research has shown time and time again, most people underestimate how much they spent, and don’t have great insight to where it’s going either. For example, even if people know they have a daily morning coffee routine, they don’t realise that this can add up to a significant amount per year: assuming 250 working days per year, with a $7 coffee, that’s a total morning coffee expenditure of $1,750. Rather than going into your fun account this is now going into Starbuck’s CEO’s fun account. And that’s no fun at all… Additionally, we can look at this from a psychological and economic level. Let’s start with the latter.

On an economic level, following this strategy ensures that the bare necessities are paid for and that they are paid first. As I mentioned, mental accounting has some issues, one of them being the apparent inability of people to move money around into different “jars”. Whereas this can backfire in most settings (e.g. it gives rise to the co-holding phenomenon), the idea that we don’t move money around is actually helpful in this case: if we don’t move money around, we won’t move more money into our fun account, at the expense of our bills account. And that’s good! On a more psychological level, we don’t anchor ourselves on a large(r) amount of money still available to us (Tversky & Kahneman, 1974). Research found that when having a larger number on our balance, we do tend to spend more and more frequently, because there’s so much more available! If you keep the money for your bills, savings and “fun” on the same account it looks like a lot of money is available to you, but really, it isn’t. Additionally, we always spend more than the balance we have, which makes budgeting for a specific balance rather useless (Pocheptsova Ghosh & Huang, 2020). Knowing this, it’s good to know that the bills have already been taken care off! And maybe secondly, and more importantly, the play account gives freedom. If there’s money on it, it really doesn’t matter what you spend it on. There’s no restrictions. If you want to buy five pairs of shoes with the fun fund, you can. It’s just that when you’re out, you’re out. You don’t need to save it, there’s other accounts for that. It allows for freedom, for splurging, for enjoyment. Things everyone wants from their money. It balances out what is normally judged to be a massively tedious task: your finances. Of course, if you cannot maintain your bills account, the fun account is the first account to suffer: you’ll need to re-order your finances. It’s possible you forgot some bills, your savings need to increase or debt needs to be repaid (can be done from a separate savings account, up to you). But the idea of still having at least one outlet that you don’t have to constantly watch like a hawk, and that you have given yourself permission for is nice. It’s really nice. *sigh of relief*


Additional notes: Barefoot has many more tips on the types of accounts you should (and should not) own. He explains how to look for lower fees and what traps to look out for. I do agree with most of them and it’s not bad at all to do some more research into different types of accounts. This isn’t just limited to your transaction accounts either. If you do set up a savings account, make sure to actually get a good rate. Shop around a bit. See what’s out there. Same goes for the transaction accounts. And if you feel really fancy, look into some supers (retirement) and investing accounts too! And last, this is article is not an endorsement of the Barefoot Investor, I’ve just started reading the book and some of his advice makes a lot of sense looking at it from a behavioural science perspective (which he doesn’t, btw). So I thought I’d share it here. This is a blog about personal finance and behavioural science after all!


Behavioural Science

Personal Finance



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