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[This article originally appeared in Financial Times] Are low oil prices good for the US economy? Of course. But are they good for retail stocks? That depends on the retailer, and on the mental account that consumer spending is coming from.

A “mental account” is not a new form of a cheque or savings account. Rather, the term comes from behavioural finance – a relatively new science that tries to explain our financial decisions. Our brain uses shortcuts to process information. And it creates “mental accounts” for different financial decisions.

We will buy a nice entertainment centre with a windfall from a risky gambling excursion – it was “found” money after all. With an inheritance from a grandmother, the money goes to a more conservative type of mental account, maybe even making it into our retirement fund.

Money is a fungible commodity – $5,000 inherited from grandma buys as many Britney Spears compact discs as $5,000 won in casino gambling. But we treat this money differently, placing them into different mental accounts. We just do.

The same type of thinking applies to other aspects of life. We put a different value on money depending on the source of funds. Borrowed money usually carries less weight when it comes to spending decisions than hard-earned cash, though it should carry a higher value since we have to pay interest on it.

Almost unprecedented low interest rates created cheap money in the eyes of US consumers and fuelled the economy. After 9/11, they went on a prolonged shopping spree, taking out equity from their appreciating house and buying newer, bigger, shinier must-haves.

Home equity loans are considered to be “found” money and thus put in a less valuable mental account. What many neglected to notice:

* Home equity loans do not come free – they carry an interest rate often linked to short-term rates, which have risen substantially. That chips away at discretionary spending.

* Home equity loans have to be repaid.

* Housing prices rose nationwide, thus creating no wealth. Consumer debt – the liability side of the balance sheet – has risen over the years, but so has the asset side. Unless a homeowner decided to move to Antarctica or into a smaller house, the new wealth did not increase their house buying power.

I would argue that rising housing prices have not increased homeowner’s wealth. Instead, they have increased property taxes – as our houses appraise at a higher value. They have increased the transaction cost of buying and selling houses (because agents take a percentage of the price).

And they have encouraged consumers to spend more as they counted on housing prices to rise forever.

This leads to another problem, as housing prices may face a first nationwide decline. The asset side of consumer balance sheets will be lower but the liability side, the debt, will remain the same or even rise as interest rates increase and negative amortisation loans keep adding to mortgage balances.

How does this relate to oil prices and retailers? Very simply, our spending on gasoline comes from wages – a mental account many call a paycheck. We spend our paycheck mental account on staples such as groceries, clothes and diapers – lower-price items.

A new kitchen countertop from Home Depot or a flat-screen television from Best Buy (NYSE:BBY) comes from the home equity loan mental account. This account will shrink as housing prices decline.

Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) , which sell must-haves, should benefit as the amount in their mental account will rise with lower oil prices. Companies that sell big-ticket discretionary items will not benefit much.

Lower oil prices will most help companies that make “stuff”. Take Kimberly Clark (NYSE:KMB): it takes polymer (an oil byproduct) to make diapers, and it requires energy (oil) to convert plastic and paper into a Huggies diaper. Diapers do not wheel themselves into store shelves and transport costs will come down with oil prices. Kimberly Clark spent hundreds of millions of dollars on becoming more efficient, but its cost cuts could not offset increased oil costs. At least for a while, lower oil prices will let the company enjoy the fruits of its labour.

Disclosure: Author has a position in WMT, KMB

Source: Lower Oil Costs Aid 'Must-Have' Retailers The Most