The Influence of Budgets on Consumer Spending

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.