The Effect of Financial Scarcity on Discretionary Spending, Borrowing, and Investing

Gülen Sarial Abi*, Aulona Ulqinaku, Giampaolo Viglia, Gopal Das

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

Past research indicates that individuals with scarce resources focus on urgent needs. We hypothesize and find that individuals with scarce financial resources have greater discretionary expenditures such that they engage in more discretionary spending, borrowing, and investing. We demonstrate that one possible explanation for why those with scarce financial resources have greater discretionary expenditures is because they have more optimistic future perceptions. We support our predictions using a sample of over 60,000 observations from a survey in rural India, two archival datasets from surveys in Italy and Germany, and two preregistered online experiments. We control, test, and rule out different alternative explanations. The results of this research extend the findings in the financial scarcity and discretionary consumption literature. Additionally, we provide actionable guidelines for managers and public policy makers on how to nudge individuals with financial scarcity.
Original languageEnglish
JournalJournal of the Academy of Marketing Science
Number of pages30
ISSN0092-0703
DOIs
Publication statusPublished - 11 Oct 2021

Bibliographical note

Epub ahead of print. Published online: 11. October 2021

Keywords

  • Financial scarcity
  • Future perceptions
  • Discretionary spending
  • Discretionary borrowing
  • Discretionary investing
  • Optimism

Cite this