How Consumers Budget

Abstract

Although budgeting is widely considered a common method of managing household finances, surprisingly little is known about the budgeting process. Using a nationally-representative survey (N=3,826) of US adults, we examine budgeting behaviors and beliefs, including who budgets and why, how individuals categorize consumption, and how they adjust their behavior after over- or under-spending. We identify five facts that illuminate key features of budgeting and supplement findings with administrative data (N=194,678) from a large financial institution in Australia. Understanding systematic patterns in how individuals and households budget may serve a critical role in informing economic models of consumption-savings behavior.

Keywords: budgeting, household finance

JEL Classification: D14, D90, G50