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

The current work investigates an under-examined driver of consumer borrowing and demonstrates how it makes novel predictions about borrowing decisions for discretionary purchases. Previous work shows that people prefer to use borrowed funds for longer-lived (vs. shorter-lived) purchases because of the desire to match the duration of debt repayments with the physical life of the purchase. In contrast to what this prior research might suggest, an analysis of archival data and six studies demonstrate that people are more willing to borrow for experiences than for material goods despite their greater ephemerality. Consumers generally consider borrowing when they do not have other purchasing resources available, and thus deciding not to borrow results in foregoing the purchase in the present. We therefore suggest that purchase timing importance is a primary consideration in most borrowing decisions. We define purchase timing importance as the perception that postponing a purchase in one time period (a) decreases that purchase’s utility and/or (b) limits the ability to make an identical purchase in another time period. We suggest that experiences are perceived to have greater purchase timing importance, in part because they are inherently associated with the time period of their consumption, which in turn increases willingness to borrow for experiences (vs. material goods). Thus, greater willingness to borrow for experiences is attenuated when differences in purchasing time importance are minimized. Further, we reconcile the apparent contradiction between the predictions in the previous and current research by examining the relative impact of purchase timing importance and payment-benefit duration matching in different borrowing contexts.