Mental Accounting and Remittances: A Study of Malawian Households

In this paper we use a behavioural approach to studying household consumption behaviour in Malawi. In particular we are interested to know whether households use mental accounting when consuming different categories of good. It is useful for assessing the impact of remittances on household consumption behaviour. We use 1998 cross-sectional data to find the following key results: (i) mental accounting systems are in operation. Remittance income exhibits a higher marginal propensity to save than other income sources, (ii) household income influences consumption habits, (iii) receipt of remittance income impacts on spending habits. This is in line with the theory of remittances and corresponding mental accounting theory, and, finally, (iv) remittances receipts impact positively on the likelihood of consuming education and low income remittance receiving households consume significantly more education at the margin than other households