An assessment of the effects of mental accounting on overspending behaviour: An empirical study

Abstract

Over 40% of American households always feel like they are overspending and they regret their choices. However, these consumers are unaware of the type of overspending they follow. Such overspending behaviours include income overspending (a consumer spends more than his or her earned income), expected overspending (a consumer spends more than expected in a “normal” year) and credit overspending (a consumer does not pay off credit card balances). The study aims to explore how overspending behaviours are affected by the mental accounts of wealth, saving goals and expense forecasting. Using data from the 2016 Survey of Consumer Finances, the study describes overspending behaviour associated with three types of mental accounts. The study reveals that expected overspending is affected by expenditure forecasts and wealth allocation while credit overspending is affected by wealth allocation only. Income overspending is influenced by wealth allocation, expenditure forecasts and savings goals. These findings have important implications for consumers and finance professionals. Furthermore, the study reveals the important influence of consumer demographic characteristics on overspending behaviours by showing that certain types of consumers have a higher propensity to overspend.

Influences of mental accounting on consumption decisions: asymmetric effect of a scarcity mindset

“…Notably, the money assigned in the distinct mental account is considered to be different and irreplaceable. Such a nonfungibility effect is considered the fundamental feather of mental accounting (Thaler, 1985;Sui et al, 2021). Although the operation rules of mental accounting often violate the classical economic principle of fungibility, consumers are susceptible to mental accounting when they make purchase decisions (Cheema and Soman, 2006;Xiao and O'Neill, 2018;Sui et al, 2021).…”

“…Since Thaler proposed the theory of mental accounting (Thaler, 1999), a wealth of evidence has shown that consumers make purchase decisions within the limited spending and saving categories in a budget system (Arkes et al, 2008;Reinholtz et al, 2015;Hossain et al, 2018;Sui et al, 2021). Notably, consumers tend to label money based on the context in which it was obtained (Thaler, 1985;Levav and McGraw, 2009).…”

Analisis Pengaruh Belanja Online Terhadap Kredit Berlebihan

“…Pengeluaran yang melebihi pendapatan dapat memicu overspending dari hasil pengeluaran yang diharapkan selama satu tahun. Situasi rumah tangga tidak dapat mengontrol pengeluaran dimana dituntut harus melunasi pembiayaan berkala maka akan memicu kredit berlebihan (Sui et al, 2021).…”

Understanding Money Management Behavior Through the Theory of Planned Behavior

“…Overspending is strongly linked with saving, the first being influenced by wealth allocation, expenditure forecasts and saving goals (Sui et al, 2021). Some authors perceive overspending as a form of pathological spending having deep psychological roots such as depression and guilt feelings (Glatt & Cook, 1987).…”