Back to Homepage Income Measures Income: Saving and Investment Methods of Buying That Save Money The Choice of Goods Methods of Buying That Reduce Mistakes In Selection Methods of Securing Information Concerning Goods Plans and Motives of Consumers Consuming the Product Who Is the Consumer? The Consumer in the Market Priorities and Preferences in Consuming Decisions The Consumer as User of Wealth The Consumer as a Buyer Consumers as Self-Conscious Agents Criteria of a Good Market Information Versus Persuasion of the Buyer The Rate of Interest Interest Rates and Economic Activity Saving, Investment, and Income Saving Motives Saving Plans and their Realization Total Spending Is the Key to Prosperity The More We Spend, The More We Have Spending by Private Enterprise

Plans and Motives of Consumers We, as consumers, do not plan. How we spend our money depends on fashion, salesmanship and advertising, social background and standards, considerations of prestige, insecurity, and emotional conflicts—all nonmeasurable factors that change constantly. If such a view were correct, consumer economics as a scientific discipline would not be possible. Opinions have also been expressed that are less extreme than those just formulated but that lead to the same negative conclusion. One of those opinions is that the poor cannot plan ahead, and the rich need not. The poor are concerned only with subsistence; they live from hand to mouth, spending whatever they have for food and shelter so as to stay alive, without any plan or deliberation. The rich, on the other hand, satisfy their whims, purchase whatever comes to their minds. Or, it has sometimes been said that people are divided into classes, not by their economic resources, but by certain inflexible personality traits. There are some careful people, so this opinion runs, who budget their expenditures; they set aside certain amounts for every type of need: for rent, food, streetcar fare, newspapers, cigarettes, and so on. Other people, with different constitutions, spend on whatever need arises at a given moment as long as their money lasts. Both of these views may open the possibility for certain institutional and anthropological studies, but appear to exclude the establishment of principles of consumer behavior. Consumer behavior is, however, susceptible of empirical investigation. To be sure, the evidence as yet available to answer the question whether consumers do plan and do act with foresight is tentative and incomplete. Likewise, no definite studies have yet been made about the origin of consumer behavior patterns prevalent in the United States today, or about the differences in consumer behavior in different cultures and at different times. But empirical investigations have begun to collect information relevant to the question: When, under what circurmstances, is one kind of consumer behavior likely to occur, and when, under what circumstances, another kind of behavior? It would be of little value in economic surveys to ask people such a broad question as "Do you plan the spending of your money?" Instead, we must ask a variety of questions and conduct repeated surveys so as to discover what went on before people made certain specific expenditures. We can also ask a man whether he expects to buy, for example, an automobile within a certain future period and, if the answer is affirmative, check later to learn whether he actually bought it. Or, if he said that he did not expect to buy a car and is found later to have actually bought one, we can seek the reasons for his behavior. DO CONSUMERS PLAN? In turning to the study of specific forms of consumer behavior, we shall consider first the behavior involved in buying a house. Suppose we find that John Smith has just bought a one-family house for $10,000. If this transaction is studied, or if hundreds of similar transactions are studied by means of detailed interviews conducted with people who have bought houses, or who plan to buy houses, one thing can be established without doubt: In some cases at least, purchases of houses are deliberately planned, discussed, and studied over long periods of time, with alternatives weighed and different courses of action thought through. We may find, for example, that John Smith and his wife looked at many houses and that their deliberations included figuring out that their savings could provide the down payment for a $10,000 house and their income could accommodate the monthly payment necessary on a house of that price. Motives for buying a house and attitudes toward the purchase of a house can be studied, and the psychological factors thereby discovered shed light on people's decisions and actions. Advance planning also occurs, again not necessarily in all instances but assuredly in some, in the case of automobile purchases. Purchases of refrigerators, washing machines, and furniture are other instances in which it could be established that some people do make plans. Further examples of planned, deliberated decisions are contracting life insurance, borrowing money, and making investments. All these examples refer to what may be called large expenditures that are made sporadically, once in a lifetime, or once in several years, or once in a year. Suppose we should say: "Large expenditures are often planned expenditures." What does this statement mean? In the Surveys of Consumer Finances, a representative cross section of the nation's families were asked year after year whether they expected to buy houses, automobiles, furniture, refrigerators, washing machines, radio or television sets, or other household appliances during the next twelve months, and if so, how much they expected to spend on those items. Then, a year later, another representative sample of families—and in two instances samples of the previously interviewed families—were asked what kinds of durable goods they had bought during the previous year and for how much. It was then found that more purchases were actually made than had been expected at the beginning of the year. 3 Some people who had said, "We do not expect to buy a car [furniture, etc.] next year," had nevertheless bought those goods during that year. Does it follow that some purchases of durable goods were "planned" and some "not planned"? It is evident that we used these terms to mean planned (or not planned) at the beginning of the year in which the purchase was made. Possibly, then, the occurrence of unplanned purchases (as defined in the surveys) is due to our having postulated too long a time period. Possibly, we would have found more instances of planning if we had conducted monthly instead of annual surveys. There is some evidence for the correctness of this view. In one study, people were asked, first, in January what kind of purchases, if any, they expected to make during the next 12 months. Then, the next January, the same people were asked what purchases they had made during the preceding 12 months and when they made those purchases. It was then found that the number of unplanned, or not anticipated, purchases was greater in the second than in the first half of the year, and the number of planned purchases was somewhat greater in the first than in the second half of the year. Some planned and some unplanned purchases occurred, however, a few weeks as well as many months after the inquiry about expectations. How do unplanned purchases—we continue to use the survey definition of the term—come about? In some few cases—by no means in all—they could easily be explained. Mr. A. B., for instance, who bought a car in May of a given year, although in January of that year he had said, "We haven't thought of buying a new car; I don't think we will buy one this year," explained later that his old car had broken down; the repair costs would have amounted to so much that he had decided to sell his old car and buy another (used) car. We may also quote the case of Mr. C. D. who bought a house a few months after he had said that he did not expect to buy one. He had, shortly after the first interview, been transferred by his firm to another town. These and many other examples of unplanned purchases point to limitations in our definitions. The car purchase of Mr. A. B. was planned in a certain sense, although only a short time elapsed between the formation of the plan and its realization. Yet, even through conducting monthly surveys, the problem of finding a strict definition of planning would not be solved. It is possible that, in a family of considerable means, one week's planning of the purchase of a car would represent a substantial degree of forethought, whereas for another family two months' planning of such a purchase would be psychologically tantamount to acting on impulse. In order to clarify the problem, we turn then to further survey findings, again accepting, for the sake of convenience, the definition of the terms as used in the annual surveys. It was found in the surveys that the proportion of planned to unplanned purchases was not the same for all types of durable goods. In each of the postwar years, more used cars than new cars were bought without the expectation of making such purchases; furniture and radio sets were bought without plan more frequently than refrigerators or washing machines; and houses, the most expensive item about which the question was asked, were purchased least frequently without previous anticipation. In general, it was found that the less expensive the item, the larger was the proportion of unplanned purchases. In comparing the prices of actual purchases of furniture and radio sets, for instance, with the expectations expressed at the beginning of the year, it was found that the higher the price, the more frequent had been the anticipation of the purchase. A genuine decision, once made, usually leads to routine actions over a long period of time. After having decided to buy a house with a mortgage, or a car on installment, we send a check every month to the mortgage bank or installment company. Prior charges on income are fixed expenditures which are made as a matter of routine for a long time after a genuine decision is made. They often represent a very large part of our expenditures. They may include rent and insurance payments, certain regular contributions and dues, and expenditures for the upkeep and use of things previously bought (for instance, gas for the car). A few consequences of this view of consumer behavior may be cited at this point. First, although we shall discuss habitual behavior, our main concern must be with genuine decision making. An analysis of such decisions must go beyond recording the external conditions that make them possible. Since reorganizing one's field depends on motives, frames of reference, attitudes, and expectations, it is improbable that such decisions, and therefore people's expenditures, are a function of nothing but income, assets, age, and similar "objective" factors. It is probable that consumer attitudes represent—at least sometimes, or to some extent—independent forces contributing to the shaping of economic processes. The richer a community, i.e., the larger the number of families who are in a position to make many genuine decisions, the more probable it is that "subjective" factors will influence economic developments. Second, we may point to a conclusion with respect to the priority of spending or saving. Usually a substantial portion of our money outlay will be absorbed by routine actions—prior charges resulting from old, relatively inflexible decisions, and regular habitual expenditures. Therefore, quite often we save what is left over. Sometimes, however, we may decide to save more or to save less and, of course, we make decisions about large or unusual expenditures, which decisions affect our savings. It follows again that consumer economics is concerned primarily with a few important decisions that change the habitual flow of expenditures.   Home