UCLA

Consumers must constrain their spending to ensure they have ample resources for the future. This dissertation explores how consumers perceive, manage, and respond to their financial constraint. Chapter 1 explores consumers’ subjective sense of feeling like they have a small or large amount of money. This chapter focuses on the relationship between how money is earned and how it is perceived (and, ultimately, spent). The key findings are that work wellbeing increases the perceived size of a consumer’s income. Consequently, consumers with high work wellbeing experience less financial constraint and engage in more discretionary consumption. Chapter 2 asks how consumers decide exactly how much they can spend, based on different presentations of their own financial information. A descriptive survey suggests consumers overwhelmingly think about their constraint in terms of two different financial metrics: either income or balance. We present evidence that consumers do not fully account for the informational differences between income (a flow) and balance (a stock). As a result, attention to either financial metric influences consumers’ assessments of current constraint, with the potential to influence spending—and savings—over time. Chapter 3 investigates how consumers establish their own constraint in the context of budgeting. Our core proposition is that the psychology of allocating (i.e., establishing a constraint) is distinct from the psychology of purchasing. Specifically, allocating disproportionately engages evaluations at the category level, making budget allocations especially sensitive to the perceived average value of a category. This can be suboptimal, as budget constraints based on average value can lead to consumption outside of the set implied by the principle of marginal analysis. Taken together, these chapters shed light on the psychology of financial constraint and its broader implications for everyday consumer decisions.