A joint account with my future self: Self-continuity facilitates adjustment of present spending to future income changes

Abstract

Is consumers' present spending influenced by future changes in their income? From an economic perspective, consumers should reduce present spending when anticipating a future income decrease and boost spending when anticipating a future income increase to maximize their welfare. We find that although consumers tend to adjust their spending to a future income decrease, they are less likely to do so to a future income increase. We show that this is, in part, due to a low sense of self-continuity, a tendency to view the future self whose income increases as if it were a different person and, as a result, to categorize present and future income into two separate mental accounts. Enhancing self-continuity leads consumers to combine present and future income in a single mental account, and thereby facilitates adjustment of present spending to a future income increase. Whereas prior work linked high self-continuity to reduced present spending, we identify a context in which high self-continuity can boost present spending. We discuss the implications of these findings for consumer well-being.