Buy it now and Pay for it Later: An Experimental Study of Student Credit Card use

Credit card debt is of increasing concern among college students, but reasons for it are not well understood. In eda simulated shopping experiment based on a hyperbolic discounted utility model, 21 participants could either save money for a new model of their favorite mobile phone brand and get it in the future or buy the product on credit and get it now. Students were willing to pay a high interest charge (nearly 40%) rather than wait to save money and purchase the phone interest-free. These results were moderated by student experience with credit purchases. Those who did not normally use a credit card did not opt to buy the phone immediately on credit but preferred to delay purchase until the money was saved. These data demonstrate that in some cases immediate availability of a much-desired product such as a mobile phone may induce credit spending with extremely high interest rates.