Technically, this year's tax rebates are a bit of both: a rebate for some taxpayers and a bonus for nontaxpayers, including retirees, disabled veterans and low-income workers who are exempt from filing (although they will have to file to receive a rebate).
Research shows we tend to save rebates and spend bonuses. Why?
"If I stopped you on the street, tapped you on the shoulder and said, 'Here's $20. It fell out of your wallet,' you're not going to run out and spend that," says Epley. "But if I tap you on the shoulder and say, 'Here's $20. I'm feeling generous today,' that's a different story. One is a return loss, the other is a gain. You don't spend return losses; you spend gains."
In one study, Epley's team gave each participant a $50 check, half of them presented ("framed") as rebates, the other half as bonuses. When contacted one week later, those who received rebates had spent less than half of what those who received bonuses spent ($9.55 vs. $22.04, respectively).
What's in a name?
How does using the word "rebate" or "bonus" affect people's spending habits? Epley, a professor of behavioral science, explains what we feel when we hear each word:
- A "rebate" feels like: "If I stopped you on the street, tapped you on the shoulder and said, 'Here's $20. It fell out of your wallet.'"
- A "bonus" feels like: "If I tap you on the shoulder and say, 'Here's $20. I'm feeling generous today.'"
A rebate is a return loss, while a bonus is a gain.
"You don't spend return losses; you spend gains," Epley says.
In an in-lab study, those who received $25 "rebates" spent $2.43 on items sold to them in the lab, while those who received $25 "bonuses" spent $11.16, more than 400 percent more.
"All of this does suggest that how you pitch this is going to make a big difference in what people choose to do with it," Epley says.
Beyond the name game
Roger Dooley, president of Dooley Direct LLC marketing consulting firm, says that while he agrees with Epley, individual circumstances probably play a greater role in the decision to spend or not to spend."What you call things does have an impact," says Dooley, who also publishes neuromarketingblog. "But to a family where you have all the other influences of the real world from both the income side and the needs side, perhaps words are a little bit less important.
"If you have bills to pay and you got a check from the government that's going to help you do that, then it may not matter what they called it, you're going to apply it as needed. Conversely, if you've been planning to purchase a large-screen TV and haven't quite had the cash to do so and this check is going to get you over the top, it really may not matter whether it's called a bonus or a rebate."
How much will you get?
The basic rebate amounts are as follows:
- Individual taxpayers: $300 and up to $600.
- Married couples: up to $1,200.
- Most individuals with income of $3,000 not required to file return: $300.
- Some taxpayers with children: additional $300 per child.
Epley says the government also undermines its efforts to induce spending in other ways. For example, rebates are sent electronically to taxpayers who file for direct deposit on their 2007 return. While that's expedient and less costly, it's also increases the likelihood that the money will just sit in the bank, he says.
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