The Influence of Budgets on Consumer Spending

28 Pages Posted: 18 Mar 2021 Last revised: 1 Jun 2021

See all articles by Ray Howard

Ray Howard

Mays Business School, Texas A&M University

Date Written: January 24, 2021

Abstract

Foundational research in behavioral economics and consumer psychology has revealed a great deal about the psychology of budgeting. However, very little is known about the extent to which budgets do (or do not) influence spending in the wild. The present research addresses this gap in the literature using naturally occurring budgeting and spending data provided by a popular financial aggregation app (study 1), and a financial diary study that experimentally manipulates budget forecasts and tracks subsequent spending (study 2). Budget compliance varies according to the nature of spending in the category: the more (less) positively skewed spending is, the weaker (stronger) budget compliance is. However, budgets positively influence spending even when budget compliance is weak. Moreover, this effect is surprisingly persistent: post-budget spending is lower than pre-budget spending even six months after a budget is set. Taken together, our findings show that the influence of budgets on consumer spending is economically meaningful, and that beliefs about the nature of consumer budgeting and planning requiring updating.

Keywords: Consumer budgeting, mental accounting, consumer financial decision making, planning fallacy, optimism, forecasting

JEL Classification: N/A

Suggested Citation

Howard, Ray, The Influence of Budgets on Consumer Spending (January 24, 2021). Available at SSRN: https://ssrn.com/abstract=3772052 or http://dx.doi.org/10.2139/ssrn.3772052

Ray Howard (Contact Author)

Mays Business School, Texas A&M University ( email )

Wehner 401Q, MS 4353
College Station, TX 77843-4218
United States

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