Here's why cash does not make for a good gift

She was pacing around the room and seemed worried about something trivial, as she normally tends to do.

"What is the problem?" I asked.

"Nothing really," she said and continued walking around the room.

I went back to reading and she didn't say anything for the next five minutes.

"Okay, I have a small problem," she said. I kept my book on the table and with an upward movement of my head, asked her what the problem was.

"It's my sister," she said.

"Yes," I replied. "What about her?"

"It's her birthday."

"And you forgot to wish her?"

"Don't be dumb," she replied. "Her birthday is in a week's time."

"Then?"

"I can't figure out what to gift her."

As I had thought earlier, she was as usual, making a mountain of a molehill.

"Please suggest something," she said.

"Why don't you just give her cash and get done with," I replied, and picked up my book again.

"You know V," she replied, "this is why I don't ask you anything."

"Oh," I said. "What is the problem with cash?"

"The problem with cash is that it is cash."

"As in?"

"Every time I give her cash, she ends up spending it on something else."

"Oh."

"And when I ask her what she bought with the money I gave her, she doesn't have anything to say. The money has been spent in meeting her general expenses for the month."

"And you want her to buy something using the money you gift her?"

"What sort of a stupid question is that?" she asked.

"Arre don't get irritated," I said. "I am just trying to think of a solution."

"Oh!"

"Why don't you give her cash..."

"Cash again?" she butted in, before I could finish speaking.

"At least let me complete."

"Make it fast."

"Why don't you give her cash and tell her that this money is to buy books from her favourite book store."

"How would that help? I mean money is money after all. She might still use it to meet her regular expenditure."

"Not really," I replied. "It's not so straightforward."

"What is not?"

"Basically, human beings operate through mental accounts and divide money into these mental accounts."

"Okay."

"Once you tell her that the money you are giving her for her birthday is to buy books, that money will be allocated to the mental account to "buy books" from her favourite bookstore. If she spends the money on anything else, she will feel guilty about it."

"Hmmm."

"And the chances are that she will use the money you give her to buy books and not spend it on random things, and not realise where the money has gone."

"That sounds like an interesting plan."

"Yes," I said, and picked up the crime fiction book I was reading, back again.

"Hold on for a minute," she said, "before you go back to your reading."

"Instead of giving her cash, why don't I give her a gift card for a website, where she can buy books from. I can make sure that she buys books and does not spend the money on anything else."

"Sounds like a plan. In fact, this is a point that Dan Ariely and Jeff Kreisler make in their book Dollars and Sense – Money Mishaps and How to Avoid Them: "If we get a gift card… we will probably buy things we wouldn't normally purchase if that same amount had come from our pay cheque. Why? Because a gift card goes into the gift account, whereas our hard-earned job money goes into a more protected, less frivolous account. Those accounts have different spending rules (even though… all of it is our own, fungible money)."

"Now that makes sense."

"Of course," I replied. "I always make sense."

"Well V, let's not really go there."

(The example is hypothetical).

Vivek Kaul is the author of the Easy Money trilogy.