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Placeholder Lesson:
** This lesson is generated with AI assistance and approved by Danny Nelson. This lesson will communicate the essence of the topic for now until Danny can create a full lesson. **
Mental accounting occurs when people divide money into categories and treat it differently depending on its source or purpose.
For example, they may splurge a tax refund but guard their paycheck closely.
This can lead to irrational financial behavior because money is fungible—it has the same value regardless of its label.
Mental accounting often undermines budgeting and investment decisions.
It reflects the emotional rather than rational way people manage resources.