Discretionary Debt Decisions: Consumer Willingness to Borrow for Experiences and Material Goods

Abstract

Previous work suggests consumers consider a purchase’s longevity (i.e., how long purchases last) when making debt decisions. This work shows that consumers prefer using debt to pay for longer-lasting purchases so that they continue to receive benefits from the purchase as they pay for it. The current research finds an opposite pattern. Consumers are more willing to borrow for experiences than for material goods, even though experiences do not last as long. Since consumers typically borrow when current funds are unavailable, deciding not to borrow results in foregoing the purchase in the present. Given this consequence, we suggest that purchase-timing importance is a stronger driver than the purchase’s longevity in most borrowing decisions. Using archival data and seven studies, we show that consumers are more willing to borrow for experiences than for material goods. This effect is explained by greater purchase-timing importance for experiences rather than other differences between experiences and material goods. We reconcile the apparent contradiction between the predictions in the previous and current research by examining the relative impact of purchase-timing importance and purchase longevity in different borrowing contexts.

Keywords: experiential purchases, material purchases, consumer borrowing, debt, financial decision making, price elasticity, willingness to pay, joint versus single evaluation, scarcity