Setting a spending limit goal might backfire, survey shows

Be forewarned: By setting a budget, consumers shopping for a new TV set, couch or car are likely to end up spending a lot more than they planned, a new study shows.

Marketing professors at Brigham Young University in Utah and Emory University in Atlanta found that consumers spend up to 50 percent more when they shop with a target price in mind than those who don't. Their research will be published in the next issue of the Journal of Marketing Research.

"Obviously, the reason people are going shopping with a budget is to try to control their spending and spend less," said Jeffrey Larson, a BYU assistant professor of marketing and co-author of the study.

"What happens is, because they go shopping with a budget in mind, their thought process is affected and they focus on quality and features instead of price -- and as a result end up spending more money."

The notion that someone will readily spend more than intended seems contrary to common sense, and personal finance experts often recommend setting a budget to keep spending under control.

But after conducting several experiments to test consumer thinking, Larson and Ryan Hamilton, an assistant professor of marketing at Emory University, found that budgeting can actually increase a consumer's preference for higher-priced, high quality items.

The experiments were set up to get shoppers thinking about price. In one, participants were asked to think about buying a 32-inch high-definition TV. They were asked to pick a price target, and then asked to choose between a brand priced $18 higher and one priced $18 lower. So if a participant chose a target of $400, he or she was shown two TVs around that price -- Brand X, said to be of higher quality but priced at $418, and another supposedly lower-quality Brand Y TV priced at $382.

About 55 percent picked the more expensive TV, while a minority selected the cheaper set. On the other hand, 69 percent of participants who were given the same choices without being asked how much they were willing to spend opted for the $382 TV.

"The results (of this experiment and others) were always the same -- a preference for higher-quality, higher-priced items," Larson said.

The research makes sense to Brooke Freebairn, 29, of Salt Lake City. She says she frequently spends more than she budgets on big-ticket items.

"Once you get to the store and see the options, you usually end buying the higher-priced product because you want to get the best value for your dollar," Freebairn said.

Sheila White, on the other hand, rarely buys products that are priced above her budget. That's because she does her homework online before she ever steps into a store.

White, 52, who also lives in Salt Lake City recently planned to spend $750 to $800 on a TV set. When the time came to buy, she knew exactly which set came with the features she wanted. White visited several stores to see who had the best deal. And when she finally made her decision, she came in under budget.

"I try to be a careful shopper," White said.

The phenomenon seems to take place only when a consumer shops for one item, even something as mundane as a ballpoint pen, another experiment showed. It falls apart when buying several items. Setting a budget to make multiple purchases still seems to be the best way to limit spending, Larson said.

So what is a consumer to do? Larson has two suggestions.

First, remember the phenomenon the next time you get ready to shop. Just knowing that the effect is there is usually enough to counteract it, he said. Second, determine what features and quality levels matter most before thinking about price.

"We haven't tested it yet, but our initial research would indicate that if you decide on the quality level you're comfortable with, you will then focus on price and end up spending less money," Larson said.

Distributed by Scripps Howard News Service