Financial Constraint Induces a Shift Toward Material Versus Experiential Purchases Through Long Term Focus

As people try to spend their money in ways that maximize their happiness, they need to trade off investments in experiential versus material purchases. Past research has shown that money allocated to experiential purchases may result in greater long-term happiness (e.g., Carter and Gilovich 2010; Nicolao, Irwin, & Goodman 2009; Van Boven & Gilovich 2003), suggesting that consumers should spend more money on experiential purchases (Dunn et al. 2011). The current research examines what happens when people feel financially constrained and this trade-off is more pressing than usual. Are financially constrained consumers more likely to spend their limited resources on experiences, thus allocating their scarce resources to get a bigger happiness bang for their buck? We propose that, rather than increasing the hedonic efficiency of their investments by focusing on experiential purchases, financially constrained consumers instead allocate more of their scarce income to material goods. Specifically, we propose that financial constraint increases concerns about durability, which in turn shifts preferences towards material goods.