Simon J. Blanchard
I study how consumers handle spending, budgets, credit cards, and resulting debts. I do so via mixed-methods, which includes experimentation and econometrics.
Sample Projects about Personal Finance and Debt Management
1. Carlson, Kurt A., Jared Wolfe, Simon J. Blanchard, Joel C. Huber and Dan Ariely (2015). ”The Budget Contraction Effect: How Contracting Budgets Lead to Less Varied Choice.” Journal of Marketing Research, 52 (3), 337-348. [PDF]
When consumers see there budget decrease (e.g., from $120 to $80 in disposable), there allocate their spending of $80 to fewer product categories than when they have the same $80 after a budget increase (e.g., from $40 to $80 in disposable). That is, when consumers experience a decrease in budget, they tend to cut entire categories because the feeling of loss is weaker by doing a few "focused cuts" across a few categories than cutting a little across everything they buy. Our research speaks to important reference points that consumers make as they experience budget volatility, and consumption patterns changes (e.g., cut entire categories) as they experience said volatility.
2. Kettle, Keri L., Remi Trudel, Simon J. Blanchard, Gerald Haubl (2016). "Repayment Concentration and Consumer Motivation to Get Out of Debt." Journal of Consumer Research, 43 (3), 460-477. [PDF]
We study the effect of concentrating repayment (vs dispersing) repayments, across multiple debt accounts, on consumers' motivation to get out of debt. Across 3 experimental studies and data from HelloWallet, we find that consumers worked harder at getting out of debt (e.g., did more tasks for money, allocated more of their disposable income to repayments) after they saw a large chunk of debt cut from focusing their repayments on the smallest account. We show that it's not because focusing on small accounts creates feeling of progress through closing debt accounts, as that's quite rare for most consumers. Rather, it's the gain in motivation from "cutting out" a large chunk of a single balance that is motivating. This can explain why the infamous "snowball method" for debt repayment can be an effective tool at minimizing consumer debt.
3. Remi Trudel, Simon Blanchard, Keri Kettle (2018), "Labeling Debt as Ordinary versus Exceptional to Motivate Consumers to Increase Credit Card Repayments." In preparation for revision at the Journal of Consumer Research.
In this manuscript, we propose a series of interventions designed to increase consumers’ debt repayment amounts. Building on prior literature on how consumers categorize purchases, three experimental studies show that interventions which label consumer credit card debts as either ordinary or exceptional motivate consumers to make larger credit card repayments – but only to the extent that their debt predominantly consists of ordinary expenditures. In our fourth study, using field data from real indebted consumers, we show that making people aware of their exceptional debt by sending unusual spending notification emails can increase repayment amounts – but, consistent with our experiments, only if most of the debt actually comes from ordinary expenses.
4. Simon Blanchard and Kurt Carlson (2019), "Assessing Investor Biases Emerging from the Reading of Financial-Analyst Reports: Distortion of Information to Support Directional and Volatility-based Leanings." Under review.
Retail investors increasingly have access to both platforms that allow for sophisticated trading strategies - those profit in ways other than by selling an owned stock after price increase - and to financial-analyst reports upon which to build investment strategies. Building on the predecisional distortion literature, we study how consumers of financial-analyst reports bias information to support emerging preferences, both directional and volatility-based trades. We then present the results of two experiments conducted with retail investors with high financial literacy asked to develop investment strategies based financial-analyst reports. We find that those tend to who develop preferences toward bearish trades (i.e., profits from a stock price decrease) tend to bias new information more strongly those who develop preferences toward bullish trades (i.e., profits from a stock price increase). We also show that those leaning toward volatility-based trades (i.e., profit from either small or large price movements) tend to evaluate information in a less biased way and those leaning toward directional trades (bullish or bearish).
5. Simon Blanchard and Remi Trudel (2019), "Debt as Usual: On the (In)effectiveness of Framing Tax Returns as Ordinary Income to Increase Debt Repayments." Work in progress.
Tax season is one of the few moments at which indebted consumers have a real opportunity to improve financial situation. To encourage larger debt repayments during tax season, indebted consumers are often encouraged to think of tax return money as ordinary income (i.e., earned money being given back) as opposed to windfall income (i.e., unearned money being given). In this research, we investigate the relative effectiveness of windfall and ordinary income frames at encouraging indebted individuals to allocate their tax returns to their debts. Across a field experiment with consumers with credit card debt and three experiments, we investigate the effectiveness of encouraging consumers to think of non-permanent income as windfall or ordinary income. We find that for consumers with high balances of credit card debt, acting as a proxy for feeling liquidity constrained, windfall income frames are more effective as motivating consumers to allocate their non-permanent income to debt repayment. We show that unless low financial self-efficacy individuals are stressed about their financial situation, windfall income frames are indeed more effective at encouraging repayments. Our results provide practical guidance on how to encourage indebted consumers to use tax return money to improve their financial situation.