Linking Consumer Debt and Consumer Expenditures: Do Borrowers Spend Money Differently?

Abstract

This study uses data from 5,174 households in the 1994–1995 Consumer Expenditure Surveys to investigate differences in expenditure patterns between households who borrow money and households who do not borrow money. Findings show that, holding total expenditure constant, compared with otherwise similar nonborrowers, borrowers spend less money on necessities such as shelter, food at home, and utilities, but more money on some luxury commodities that have the potential for social display, such as car purchases, household furnishings and equipment, and entertainment. Furthermore, borrowers are found to be almost unitarily income elastic with respect to apparel, medical services, alcoholic beverages, and food away from home, whereas these commodities are luxuries for nonborrowers. Borrowers are also found to spend more money on health insurance and prescription drugs and medical equipment, possibly due to poor health. Theoretical and empirical implications of this research are discussed in this study.

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