Overspending on smartphone purchases among Swedish young adults

Abstract

In the Nordic countries with growing markets for consumer credit, a concern is that consumption desires in conjunction with easily accessible credit make financially constrained young adults vulnerable to problem debt and over-indebtedness. In addressing this concern empirically, we investigate whether retail offers of instalment payments of discounted cash prices tempt young adults to finance purchases of more expensive premium smartphones than they would purchase by cash payment. Descriptions of smartphones ranging from budget to latest premium models are in an online experiment presented to 152 Swedish young adults between 18 and 25 years. We employ a within-group design requiring the participants in counterbalanced order to choose a preferred smartphone twice, either if the default choice is paying the regular cash price or two-year monthly instalments with a 20% discount on the cash price. Although a majority chose the same smartphone twice seemingly not influenced by the retail offer, this was not the case for about one third of the young adults who despite a negative attitude to borrowing choose instalment payments of more expensive premium smartphones, and more than half of them at a price exceeding the regular cash price they choose to pay for a cheaper smartphone. Instalment payments as well as rental contracts are penetrating many consumer markets in which young adults are large segments. These new forms of accessible credit should be particularly attractive to those who are financially constrained with potentially negative consequences for their solvency. Our results suggest that regulation policies may need to be considered.

Keywords:

• consumer credit
• Nordic loan market
• smartphone
• spending
• young adult

Acknowledgements

We thank Jeanette Carlsson Hauff, Viktor Elliot, Ted Lindblom, and Jonas Nilsson for valuable comments on earlier versions of the manuscript, and Foisal Ahmani for research assistance. The study was in 2018 presented at the IAREP/SABE conference at University of Middlesex, London.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 In the proportion of our sample of young adults who reported having paid themselves for their current smartphone, 45.1% paid in instalments.

2 Even though smartphones may not frequently stop working, the scenario represents the typical features of the retail environment, including marketing of new models of smartphones, customers desiring to immediately purchase the new models, and accessible payments in instalments.

3 Eighteen years is the lowest legal age for making instalment payments. Since a majority of young adults up to approximately 25 years earn low or no salaries from paid work, they are unlikely to afford to pay in cash for expensive premium smartphones.

4 The purpose of the expert evaluations was to provide non-technical information such that less knowledgeable participants would consider also other features than price.

5 Additional regression analyses did not reveal a significant main effect of whether instalment payments were presented before payment of the cash price or the reverse, neither that this factor interacted significantly with the other factors.

6 Note that a negative coefficient implies that a positive attitude to borrowing would decrease instalment payments, thus opposite to what Gärling et al. (2020) observed.

Additional information

Funding

This research was financially supported by grants to Centre for Finance, School of Business, Economics, and Law, University of Gothenburg, Göteborg, Sweden, from Handelsbanken Research Foundations [grant #P2015-0265:1] and from Swedish Agency for Innovation Systems (Vinnova) [grant #2010‐02449].