Relational Accounting Essay

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Relational accounting refers to the ways in which social relations generate practices of recording, categorizing,  and   evaluating   financial   activities and how these practices influence the financial choices of individuals.  An understanding of these practices  matters  for social scientists because they have  been  shown  to  lead  individuals   to  violate some  of  the  central   tenets  of  classic  economic theory—namely, consistency of preferences, utility maximization, and the fungibility  of money.

For example, take the oft-cited case of Christmas savings   clubs.   The   economist   Richard   Thaler (1999)  describes how they work:

In November  (usually Thanksgiving)  a customer opens an account  at her local bank  and commits herself to depositing  a given amount each week for  the  next  year.  Funds  cannot  be  withdrawn until   a  year  later,   when   the  total   amount  is redeemed,  just  in time  for  the  Christmas shopping  season.  The  usual   interest   rate   on  these accounts  is close to zero.

This case is interesting  because, according  to standard economic theory, Christmas savings clubs should be unpopular with consumers. The accounts are not liquid, which means that an account  holder cannot   withdraw  funds  during   the  prespecified period  of  time;  they  have  a  rather   low  rate  of return   (if  any);  and  they  have  high  transaction costs (since they require  weekly deposits).  In this way,  the   costs  of  this   arrangement  exceed   its financial  benefit, which violates the assumption of utility  maximization. Yet  for  much  of  the  early 20th century, Christmas savings clubs were incredibly   popular  in  the   United   States,   with billions   being   invested   every   year   across   the country. (Thaler  suggests that  a modern-day example   of  this  practice   is  tax   withholdings— which  he  refers  to  as  the “Easter” account.)   So, given  that  standard economic  theory  falls  short, what   explains   the   popularity  of  this  practice? There are competing  arguments.

On the one hand, Thaler contends that the popularity of the savings clubs was the result of a need  to  implement   institutionalized  devices  for self-control.   According   to   Thaler,   the   lack   of liquidity was precisely the point. The account  functioned  as  a  means  to  protect  oneself  from  one’s own impulses to spend rather  than save and to use the funds for purposes  other  than  what  they were intended.  As a result,  he argues,  the  costs associated  with  the savings accounts  were a small price to pay in return for the assurance of having enough money for presents at Christmas.

On   the   other   hand,   the   sociologist   Viviana Zelizer   argues   that   their   popularity  was   the result  of a need to negotiate  household relations.

That is, while Zelizer also contends that the lack of liquidity  was the appeal  of the savings clubs, she argues that they were not primarily  used to protect an individual  from oneself. Instead, she notes, most users of the Christmas savings clubs were workingclass wives, who relied on those clubs as a valuable institutional device  to  safeguard   holiday  monies from  other  household members  (especially  their husbands). Without this  device, she argues,  these women   would   have  to  endure   the  humiliating practice of begging their husbands for “gift money.” Thus,   she  contends   that   participation  in  these savings clubs can be better understood as “relational work” done  by  working-class  wives  and  as  an outcome  of their relationships with husbands, children,  and  other  family members—who would otherwise   argue  about   which  monies  are  to  be spent,  by whom,  for  whom,  when,  and  for  what purpose.

Mental Accounting  And Relational Accounting

Beyond  the  case of Christmas saving  clubs,  both economists and sociologists have documented other ways in which  people  categorize  their  money  that cannot  be explained  by standard economic  theory. For example,  people  often  categorize  their  money based on its source. That is, individuals differentiate earned   money  (i.e.,  a  paycheck)   from  unearned money  (i.e., windfall  gains), or clean money  from dirty money (i.e., money from illegal or illegitimate sources).  Moreover, people  often  categorize  their money based on its intended  use. That  is, individuals differentiate rent money from holiday money, or remittance money from petty cash.

Importantly, these categorization practices  have been shown  to affect how individuals  account  for their money, which leads to seemingly bizarre behaviors  where  dollars  equal  in monetary value are treated  unequally  in practice.  That  is, because the origins and intended use of money matter, individuals  often treat cash as nonfungible and noninterchangeable. As a result, household budgets are bundles  of categories  rather  than  fluid assessments of expenditures and incomes. Understood in this way, it is not hard  to imagine someone’s resistance  to dipping  into  the remittance category,  for instance, when daily expenditure accounts  are approaching their limit.

Like their  differing  explanations for the popularity  of the  Christmas savings clubs, Thaler  and Zelizer’s explanations for these practices of categorization  also differ. While the former  sees them as an  example  of individuals  adopting internal  systems of self-control  (which he calls “mental accounts”), the  latter  argues  that  these  practices are  examples  of relationship management strategies (or “relational accounts”). That  is, while  the former  contends  that  categorization emerges from one’s need to protect  oneself, the latter  argues that it emerges from  a need to negotiate  relationships, which is governed by the shared meanings we hold within those relationships.

These  different  explanations are  the  result  of their  different  approaches to  understanding economic action.  Thaler  is a proponent of behavioral economics,  which  is an  approach that  focuses on the way people  think  and  the heuristics  that  individuals use in their decision-making processes. Zelizer,  by  contrast, is a  proponent of  relational sociology, which is an approach that focuses on the social relations that an individual  has, the meanings associated  with  those  relations,  and  the  matching of those  particular relations  with  the  appropriate type of economic transaction and media (what  she refers to as “relational packages”).

Relational sociologists  contend  that,  although an understanding of “mental accounting” clarifies some crucial features  of categorization, identifying individual   mechanisms   explains   only  select  features of the process. This is because mental accounting explanations do not address the role that social relations  might play in generating  the practices  of recording,   categorizing, and  evaluating   financial activities. As the sociologist Frederick Wherry contends, the relational accounting approach calls attention to the fact that  individuals  do not make financial  decisions  in a vacuum  but  rather  orient those  decisions  toward a  web  of social  relationships and  a set of cultural  practices  they value as ends in themselves. Thus, he argues, relational accounting unveils a different,  and perhaps  larger, set of mechanisms  producing those  outcomes—as we saw in the case of Christmas savings clubs.

The Components Of Relational  Accounting

In  his  work,  Wherry  identifies  the  four  primary components of relational accounting:

  1. The relational site: the specific place where the transaction is interpreted and enacted, as well as the tools and devices arranged therein
  2. Relationship management: the dynamic matching of transaction media (e.g., money, gifts, and credits) with different  types of social relationships
  3. Patterned temporal  expectations: those that normalize  (or make uncommon) the timing of differently  defined receipts and payments
  4. Third-party sanctions: the enforcement of relational understandings by third  parties

The  Relational  Site. The concept  of the relational site allows analysts to consider how the shared meanings  regarding   the  site  of  transaction  may affect  the  ways  in  which  individuals   interpret a given transaction and influence their financial decisions. For example, take the practice of tipping. In the  United  States,  on  receiving  a haircut, it is customary to tip your hair dresser 15 to 20 percent of the total  bill, whether  you are a regular  or not. In England, by contrast, it is appropriate to give the hairdresser a  Christmas bonus  at  the  end  of the year.  In this  way,  we see that  while  the  object  of consumption does not change, the shared understandings of a site shape the transaction.

Relationship Management. Following from the categorization process detailed  above, the concept of relationship management allows for analysts  to consider the ways in which social relations generate meaningful distinctions among monies. For example,  the  scholars  Soman  and  Cheema conducted a social experiment promoting savings with low-income laborers in rural India. They dispensed “savings envelopes” to two randomly assigned groups. In one group, the envelopes contained a picture  of the worker’s  family, and  in the other  group  there  was no picture.  They found that  the  group  of laborers  who  had  a picture  in their  envelope saved more  than  their  counterparts in the other group, who had no family picture.

Patterned Temporal Expectations. Described by the sociologist Robert Merton, the concept of patterned temporal expectations allows for analysts to understand  how  social  relations   may  affect  the balancing  of accounts. Emerging from small groups (where  there  is frequent  interaction and  intimate sociability), patterned temporal expectations create obligations for individuals  to honor  the meanings of significant life course events—that is graduations, marriages, funerals—as well as the relationships entangled  in those  meanings.  However,  as Wherry contends, when those patterned temporal expectations are misaligned with institutionally prescribed accounts (i.e., bank loans), the accounting of individuals  may yield disadvantageous results.

Third-Party  Enforcement. The  concept   of  third-party enforcement allows for analysts to understand how parties who are not directly related to the financial transaction may evaluate a given transaction and impose sanctions  for unwanted behavior. Third parties may be either informal  (i.e., friends,  kin,  and  local  charismatic authorities) or formal (i.e., debt collectors, nonprofit or credit counselors, organizational agents from banks), and their relevance depends  on the type of transaction and the transacting parties involved. Take the commercial   sex  work  industry, for  example.  As Zelizer points  out, the cause for its illegality in the United  States  is the  belief that  economic  activity and   intimate   relations   constitute  separate   and hostile spheres. In this way, she contends, the American   courts   engage  in  relational  work,   or the matching of intimate relations with appropriate economic transactions and media.


An understanding of how individuals  record,  categorize, and evaluate  financial  activities matters  for social scientists  because  these practices  have been shown  to  influence  the  financial  choices  of individuals. Moreover, an understanding of how social relations  generate  these  practices  matters  because they offer a wider and more  comprehensive set of explanations for economic action  than  both classical economics  and  behavioral economics  models. The examples  offered  above  show  how  relational accounting provides  an insight  into  a different  set of mechanisms  than  the mental  accounting approach. And the four components outlined above allow analysts  to identify those mechanisms.


  1. Thaler, Richard  “Mental Accounting  Matters.” Journal of Behavioral  Decision  Making, v.12/3 (1999).
  2. Wherry, Frederick F. 2015.  “Relational Accounting.” Center  for Cultural Sociology Working  Paper Series. New Haven, CT: Yale University.
  3. Zelizer, Viviana A. 2012. “How I Became a Relational Economic Sociologist and What Does That  Mean?” Politics & Society, v.40/2 (2012).

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