By: Stephanie M. Tully, Hal E. Hershfield, and Tom Meyvis

People have a lot of choices when it comes to determining how to spend their discretionary money. Growing evidence suggests that how people choose to allocate this money can have a substantial impact on their happiness. Specifically, spending on experiences rather than material goods is linked to increased long-term happiness (e.g., Carter & Gilovich 2012; Van Boven & Gilovich, 2003). This line of research suggests that experiences provide a bigger happiness bang for the buck. So, when people feel financially strapped and have to make tradeoffs in terms of how to spend their discretionary money, do they realize this and prefer to invest their limited funds in experiences? In a recent article published in the Journal of Consumer Research, we find that, rather than investing in experiences, people who feel financially constrained are significantly more likely to choose material goods over experiences. 
 
For instance, in one study, we offered participants the chance to win a number of gift cards and they had to indicate which gift card they would rather receive. Those who thought about their financial constraints were more likely to select gift cards for stores selling “stuff” (e.g., Zappos.com) than for those selling experiences (e.g., Fandango). In another study, people who were asked to think about their financial constraints were more likely to prefer material goods (like buying gym equipment) over experiences (like buying a gym membership) across a number of scenarios. 
 
Macro-level analyses seem to lend support to this finding. We conducted a cursory analysis of spending patterns from the Bureau of Economic Analysis, and found that people were more likely to spend money on goods (a proxy for material items) rather than services (a proxy for experiences) during times of greater unemployment, and during times when confidence in the economy was lower. Likewise, data from the Bureau of Labor Statistics shows that people with lower incomes spend proportionately more on discretionary goods like TV and sound equipment than they spend on fees and admissions for discretionary experiences.
 
Sometimes this preference for material goods may be sensible since material goods can be more necessary than experiences. However, even when the material goods were more frivolous and wasteful than the experiences (e.g., a revolving tie rack versus an Indian dinner), people who thought more about their financial constraints were still more likely to prefer the material goods. That is, financial constraints lead people to buy “stuff” rather than experiences even if this stuff is completely frivolous and objectively more difficult to justify. 
 
So, why are financially constrained people attracted to material goods? What do material goods offer that experiences don’t? A major difference between material goods and experiences is that material goods physically persist over time while experiences are fleeting and ephemeral—an issue that may be especially concerning for those who feel financially constrained. Financially constrained people may not be able to make purchases as frequently as those who are not financially constrained. As a result, if they spend money now, they may care more about whether they will have something to show for it later. 
 
Put another way, financially constrained people may want to spend their limited resources on purchases that last and thus reduce their need to spend in the future. We tested this explanation in a study in which some people chose between an experience (e.g., a game of Skee-ball) and a lasting material good (e.g., a yo-yo), whereas others chose between the same experience and an unusually short-lived material good (e.g., glow sticks). We found that people who were asked to consider their financial constraints were more likely to prefer the material option, but only when it would last. When the material goods were short-lived, thinking about financial constraints actually made people more likely to buy the experience instead. 
 
But what about the memories that experiences can provide? Given that people enjoy reminiscing about experiences, wouldn’t highlighting the potential for memories make financially constrained people realize that experiences are actually the more effective long-term investment? Although intangible benefits (like memories) may contribute to one’s happiness, such benefits may not reduce the need to spend more in the future. For instance, pleasant memories may increase one’s propensity to spend more money to do another similar experience. Thus, we suspected that financially constrained people would prefer material purchases over experiences even if the long-term intangible benefits provided by experiences were made salient. We tested this by explicitly reminding some people of the memories that the experiences could provide while making choices between material goods and experiences. However, even when the potential memories were made explicit, financially constrained people still preferred the material purchases over the experiences. 
 
It is unclear whether this preference for material goods is beneficial for people facing financial constraints. Early research found that people at the lowest income levels did not get increased happiness from buying experiences (Van Boven & Gilovich, 2003). It’s possible, then, that financially constrained people appreciate their material goods more than other people do. However, more research is needed to understand if this is really advantageous for people in the long run.
 
Stephanie Tully is an Assistant Professor of Marketing at USC’s Marshall School of Business; Hal Hershfield is an Assistant Professor of Marketing at UCLA’s Anderson School of Management; Tom Meyvis is a Professor of Marketing at NYU’s Stern School of Business.