Breaking your budget? Why consumers overspend on exceptional purchases

Jun 19, 2012

Consumers routinely overspend on unbudgeted purchases such as birthday gifts, car repairs, or luxury chocolates because they underestimate the overall number of such "exceptional" purchases, according to a new study in the Journal of Consumer Research.

"This tendency to underbudget for so-called 'exceptional' purchases occurs because, although each purchase is unusual in isolation, when combined they tend to occur with unexpected frequency," write authors Abigail B. Sussman (Princeton University) and Adam L. Alter (Stern School of Business, New York University). "People fail to recognize just how many items fall into this exceptional category, so they spend more than they would if they realized how often they were spending on these exceptional purchases."

The authors found that forecasted ordinary expenses accurately but underestimated how much they would spend on exceptional products. Consumers were willing to pay more for exceptional items when presented one at a time than when they were presented all at once. "Consumers tend to treat each exceptional purchase as though it exists in isolation, rather than incorporating it into their budget as one in a series of unique purchases," write the authors.

For example, imagine that one of your favorite bands is performing nearby. The ticket costs more than you would ordinarily spend, but you have never seen this band live and decide the experience is well worth the cost. The following week, your TV breaks and you buy a really expensive replacement since you only buy a new TV once every few years. A week later, you are celebrating your 10th wedding anniversary. Since this is a once-in-a-lifetime event, you decide that the occasion warrants a splurge.

"Failure to aggregate unusual purchases leads consumers to splurge on purchases that they would view more conservatively if they understood these connections. Overall, this tendency results in overspending and under-saving," the authors conclude. "Understanding differences in accounting for ordinary and exceptional expenses can help consumers make wiser budgeting decisions."

Explore further: Less privileged kids shine at university, according to study

More information: Abigail B. Sussman and Adam L. Alter. "The Exception Is the Rule: Underestimating and Overspending on Exceptional Expenses." Journal of Consumer Research: December 2012.

add to favorites email to friend print save as pdf

Related Stories

In-store slack: Consumers often plan for unplanned purchases

May 06, 2010

Straying from the grocery list can yield some surprises in your shopping cart, but not necessarily in your wallet, according to University of Pittsburgh researchers and a coresearcher from Baylor University who have coauthored ...

Do experiences or material goods make us happier?

Feb 23, 2009

Should I spend money on a vacation or a new computer? Will an experience or an object make me happier? A new study in the Journal of Consumer Research says it depends on different factors, including how materialistic you ...

Extended service contracts: When and why do people buy them?

Jun 15, 2009

Consumer experts have long recommended against buying Extended Service Contracts (ESCs) with products, since they are rarely cost effective. A new study in the Journal of Consumer Research examines the reasons why so man ...

Recommended for you

Why are UK teenagers skipping school?

Dec 18, 2014

Analysis of the results of a large-scale survey reveals the extent of truancy in English secondary schools and sheds light on the mental health of the country's teens.

Fewer lectures, more group work

Dec 18, 2014

Professor Cees van der Vleuten from Maastricht University is a Visiting Professor at Wits University who believes that learning should be student centred.

How to teach all students to think critically

Dec 18, 2014

All first year students at the University of Technology Sydney could soon be required to take a compulsory maths course in an attempt to give them some numerical thinking skills. ...

User comments : 1

Adjust slider to filter visible comments by rank

Display comments: newest first

Vendicar_Decarian
1 / 5 (1) Jun 19, 2012
This is important research that will provide a means by which retailers will find exceptional reasons to charge exceptional prices, thereby increasing corporate profits.

Well done.

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.