Budgeting may make you spend more, survey reveals
BUDGETING doesn't always work -- as shoppers who go out to buy something with a set limit in mind end up spending more.
New research by the American academics turns conventional thinking about budgeting on its head. This is because the golden rule of personal finance is that budgeting helps people to save money.
But now researchers at Brigham Young University in Utah have found that budgeting often backfires for consumers.
This is contrary to the advice given by the state-funded National Consumer Agency (NCA).
The US researchers tested how much people spent on the likes of televisions and pens when they had a budget, or when they went out to purchase these items with no budget in mind.
They found that when shopping with a budget, consumers tend to focus in on goods that are near or above the price they have budgeted for.
And consumers end up ignoring goods that may be better value but are cheaper than the price they have in mind.
This means that if shoppers head out to buy a TV for €300 they will only look at goods in that price range or higher, bypassing cheaper alternatives that may be better value.
Assistant professor of marketing at Brigham Young University Jeff Larson said: "If you go out with a particular price in mind, it changes your decision process."
Consumers with a budget opt for higher quality, more expensive items, the researchers found. Shoppers who do not have a budget in mind are better at balancing the price against the quality of the item.
People with no budget ended up with a cheaper item that had lesser features but these were not important to the consumer.
The National Consumer Agency said it could not comment on any research that it had not carried out. But it urged consumers to stick to budgeting.
"The National Consumer Agency would urge all consumers, especially those on a budget, to always shop around for the best deals and consider all alternative options that may be available to them before they buy a product or service," a spokeswoman said.
The agency added that its own research has repeatedly shown that the majority of those who take the time to shop around do save money and find the process easier.
"Even small savings made consistently really add up over the course of a year and can be used to save towards a bigger purchase, pay off debt or as savings for the future."