Mental accounting and behavioural hierarchy: Understanding consumer budgeting behaviour

Abstract

Budgeting is an important step in consumer finance. Budgeting behaviour is considered a desirable financial behaviour to indicate consumer financial capability. However, systematic research on budgeting behaviour with a large scale national sample is limited. The purpose of this study was to address this research gap and examine characteristics of budgeting behaviour from the perspective of a behavioural hierarchy, which is related to mental accounting. The assumption holds that consumer financial behaviours may be performed in a hierarchical manner along with an increase in economic resources. Using data from the 2015 National Financial Capability Study, evidence suggests that budgeting behaviour is at the lower end of the behavioural hierarchy. This finding has implications for consumer financial professionals.

Present bias and financial behavior

“…Empirical research on the association between present bias and money management is limited. Some research shows that consumer budgeting and planning behaviors are associated with consumer resource levels, in which consumers with limited resources are more likely to perform budgeting behavior and less likely to engage in planning behavior (Xiao & O'Neill, , ). In addition, research has found normative financial management behaviors including calculating retirement needs are positively related to financial resilience when consumers face financial distress (Bhargava, Palmer, Chatterjee, & Stebbins, ).…”

Immigrants, Financial Knowledge, and Financial Behavior

“…Consistent with Asaad (2015) and Allgood and Walstad (2016), we found that not only knowing more about financial matters is linked with recommended behaviors, but financial self‐efficacy as well. The results of Table 5 show that compared to born Canadians: Immigrants are less likely to plan for their retirement; Established immigrants are more likely to plan for their retirement than recent immigrants (significant at p value <.01); Recent immigrants are more likely to have a household budget perhaps due to limited economic resources (Xiao and O'Neill, 2018) and are less likely to check their credit reports. …”

“…Financial behaviors can either increase or impede the enhancement of financial well‐being. Individuals' financial well‐being 5 is related to incorporating a “skillful combination of financial knowledge and behaviour” (Xiao and O'Neill, 2018, 449). We argue that, after controlling for the effects of financial knowledge, immigrants' financial behaviors differ from those of born citizens and ultimately affect their financial well‐being.…”

Present Bias and Financial Behavior

“…Some research shows that consumer budgeting and planning behaviors are associated with consumer resource levels, in which consumers with limited resources are more likely to perform budgeting behavior and less likely to engage in planning behavior (Xiao & O'Neill, 2018a, 2018b. In addition, research has found normative financial management behaviors including calculating retirement needs are positively related to financial resilience when consumers face financial distress (Bhargava, Palmer, Chatterjee, & Stebbins, 2018).…”