The Oakley ERP Blog

5p carrier charge – A mental accounting conundrum
Friday October 16, 2015

The 5p carrier bag charge came into effect across England on the 5th October 2015 and you would have to be living under a rock to not be aware of the controversy it’s causing.

 

We are not only hearing of people complaining at the cost incurred to wrap up goods to go but in actual fact we are now seeing people resort to stealing baskets and trolleys from stores.

 

If we put this into perspective we are talking about on average those forgetting their bags having to pay around 35 pence for a weekly shop. 35 pence is an amount that we can surely pay to avoid the hassle of having to find an alternative means.

 

But this does raise an interesting angle on the old topic of mental accounting. We apply and assign different budget sets in our minds to account for our money. Not unlike how we may use a number of different budget sets in our business accounting. It is not as simple as borrowing the odd amount of money from another budget set to pay for a different activity.

 

For example in our minds it might be fine to spend £15 on a new t-shirt, but we might not be willing to spend £5 on car parking. Essentially we have predetermined where the money should come from and what value we perceive in that activity. In a perfectly rational world we would look at our money, as our money and spend it on the activity or item we require most to suit our current need… Our minds however don’t view it quite as black and white as that.

 

You don’t need to look further than the next time you go to fill up your car with petrol/diesel and find yourself driving an extra few miles to save a penny a litre. Which is a mental conundrum as you are likely to forget the exchange of your time, compared with the potential saving on your mental budget for fuel, which in all honesty is quite often around about a 50 pence saving?

 

This brings us back to the topic of the 5p plastic bag! Although this is a trivial amount of money, compared to the desired impact on reducing our carbon footprint, in our minds the money is coming from a new budget set that we have not allocated for. While one cannot condone the actions that some people are taking to this 5p charge (such as trolley stealing), it is likely it is linked to the irrational motives that are wired in our minds for mental accounting and saving on the cost.

 

 

 

England is not the first country to introduce the plastic bag charge, with Wales and Scotland already having introduced the 5p charge. The data from these two countries show a major fall in the number of carrier bags used.

 

Although we may have no choice but to work in a new budget set for the plastic bag charge, or as the government hopes retrain our behaviour to remember a bag! We can work on making sure there are not many nasty surprises in our business accounting data.

 

With an intuitive accounting solution in place you can make sure you can run multiple budget sets and even forecast into impacts such as a 5% increase in cost on last years data or perhaps a decrease in cost. You decide the numbers, the software runs the forecast. At least that’s my experience from working in the accounting software industry.

Written by David Weaver at 00:00

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