Essays on Mental Budgeting and Consumer Spending Behavior
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Date
2021-06-01
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Abstract
Budgeting allows consumers to create a plan on how to spend their money, and making a budget is often considered the first step to achieving financial wellness. Existing research on budgeting suggests that setting a budget in advance of a purchase occasion can help consumers control their spending and increase their savings. Is setting a budget in advance always effective? Does budgeting always encourage consumers to minimize spending? This dissertation expands the scope of the mental budgeting literature by identifying novel factors that impact the role of budgeting on consumer spending decisions. Essay 1 focuses on how the amount of temporal separation consumers experience between budget setting and actual purchase influences their spending decisions. Using a secondary dataset of real estate transactions, a field study, and lab experiments, this essay finds that budgeting too far in advance can lead consumers to become more likely to overspend relative to their budget. The effect is driven, at least in part, because consumers feel lower pain of payment associated with spending the budgeted money as more time passes. Essay 2 focuses on the divergent effects of budgeting on spending decisions when the budget is for a personal-purchase as compared to a gift-purchase. Using qualitative responses, lab experiments, and a field study, this essay finds evidence that consumers aim to spend below their budgets for personal-purchases, but aim to spend the entirety of their budgets for gift-purchases. It suggests that the effect holds because savings goals are less salient when making a gift-purchase than when making a personal-purchase. Together, the dissertation essays offer unique and practical insights into the topic of budgeting on consumers' spending decisions.
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Budgeting, Mental budgets, Spending decisions