201 INTERNATIONAL ISLAMIC ECONOMIC SYSTEM CONFERENCE (I-

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INTERNATIONAL ISLAMIC ECONOMIC SYSTEM CONFERENCE (I-iECONS 2021)

A Review of the Link between Compulsive Buying and Individual Debt

Mahdhir Abdullah

Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia (USIM), Bandar Baru Nilai, 71800 Nilai, Negeri Sembilan Malaysia

Tel: +606 798 6321 E-mail: [email protected]

Siti Nurulhuda Nordin

Intan Fatimah Anwar

Norasikin Salikin

Abstract

This review is the analysis of various published papers about the link between compulsive buying behaviour and individual debt.

A search in Scopus database using a search string “Compulsive Buying”AND”*debt*” conducted in June 2021 resulted in 42 documents. These documents were then filtered in terms of the years of publication, the subject areas, and the language to select only recent papers written in English and published in the areas related to Business, Economics, Social Sciences, Psychology, and Arts and Humanities, from 2016 to 2021 resulted in 11 relevant documents. The documents were then checked for eligibility by examining their synopsis and abstracts, and only relevant documents were selected for further review. The findings of the articles review conclude that there are mix evidence of compulsive buying behaviour directly and indirectly impacting debt. The indirect relationship between compulsive buying and debt is mediated by variables such as brand addiction and impulsive buying.

Keywords: Compulsive buying; individual debt; personal debt; consumer finance

1. Introduction

In today’s world, consumption culture becomes part of lives as consumers purchase products to obtain gratification, especially with the convenience of online shopping and the availability of credit. Consumers may experience a compulsive buying behaviour which refers to repeated and excessive buying of unneeded consumers

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goods (Mrad & Chi, 2020) and characterized by chronic buying habits and loss of control over buying (O’Guinn &

Faber, 1989). On another note, household debt level in Malaysia reached a phenomenally high level of 93.3 percent of its nominal Gross Domestic Product (GDP) or equivalent to USD328.7 billion in December 2020 as reported in CEIC Data. The trend of household debt in Malaysia since 2012 has shown a high and increasing household debt as a percentage of GDP of higher than 80 percent that peaked in 2015 at 86.94 percent, then slowly decreasing yet still high from 2016 until 2019, and subsequently rose tremendously to 93.3 percent in the year 2020 (Malaysia Household Debt: % of GDP, 2021). It is interesting to know whether the high level of individual debt is driven by the individuals’ consumption behaviour. In this review, we are interested specifically in compulsive buying behaviour as an example of consumption behaviour. Previous studies have documented that compulsive buying has been found to have positive effect on individual debt (Achtziger et al., 2015; Joireman et al., 2010). The purpose of this paper is to review recent published journal articles that discussed the association between consumers’

compulsive buying behaviour and individual debt, whether there is a direct relationship or an indirect relationship between these variables, or no relationship between them.

2. Methodology

A sample of peer-reviewed English language academic journal articles were retrieved through a literature search on SCOPUS database in the month of June 2021. A search string [“Compulsive buying”AND”*debt*”] was specified whether they appear in the title, or the abstract, or the keywords of the articles. A preliminary search resulted in 42 documents published in various subject areas from 1993 until 2021 including one non-English article.

The search was then filtered to include only articles published in relevant subject areas which are Economics, Econometrics and Finance; Business, Management and Accounting; Social Sciences; Psychology; and Arts and Humanities, from 2016 to 2021, and in English language. After filtering for the subject areas, years of publication and language, there were 11 shortlisted documents. The next step was screening for eligibility of the articles by analyzing the relevance of the articles with the objective of this study. Only eligible articles were downloaded from the database and reviewed.

3. Analysis of Articles Review

The articles were reviewed in terms of their discussions and findings pertaining to the link between compulsive buying and individual debt. Fundamental understanding of the variables used in the articles is very important to ensure the variables refer to the constructs under interest. For example, two articles use a variable name “credit card use” to refer to different variables. Vieira et al. (2016) in their article used the variable “credit card use” to refer to responsible use of credit cards by the respondents, while Pradhan et al. (2018) used the same name for a variable that referred to the use of credit. The former is a positive behaviour while the latter is a negative behaviour.

Therefore, in reviewing the articles, we really scrutinize the operational definition of the variables and the instruments used to represent the variables, in order to avoid misconception about the variables. Major analysis of the articles review focused on the findings about the relationship between two variables namely compulsive buying and individual debt, whether they have direct relationship, or indirect (mediating or moderating) relationship, or no significant relationship, as discussed in the following subtopics.

3.1 Direct Relationship between Compulsive Buying and Debt

From our review, there were a few studies whose findings resulted in direct positive relationship between compulsive buying and individual debts, specifically the presence of compulsive buying behaviour led to the incurrence of debt by individuals. Vieira et al. (2016) in their study about a trade-off between compulsive buying and ill-being perception in determining the use of credit card and the incurrence of debt, found a significant positive relationship between compulsive buying behaviour and credit card debt. Furthermore, they found that there are opposite forces between compulsive buying and ill-being perception on the use of debt, in a way that compulsive buying stimulates usage of debt while ill-being perception discourages usage of debt. This trade-off between

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compulsive buying behaviour and ill-being perception saw compulsive buying is more superior than the latter in explaining the use of debt. In a study by Mrad & Chi (2020), they found that compulsive buying has negative impacts on debt avoidance. In their study, they used “debt avoidance” as a variable to describe the individual debt, as opposed to “use of debt” or “propensity towards indebtedness” used by other authors. Thus, a negative relationship between compulsive buying and debt avoidance can be thought of as a positive relationship between compulsive buying and the use of debt. An interesting study by Potrich & Vieira (2018) to find an integrated effect of financial literacy on materialism, compulsive buying, and propensity to indebtedness found that there is a positive impact of compulsive buying on propensity to indebtedness. The complete integrated model of Potrich and Vieira’s study also found compulsive buying behaviour being a mediator between financial literacy and propensity to indebtedness. The elaboration of the discussion about this mediating effect will be discussed in Section 3.2 below.

The articles mentioned earlier in this paragraph all supported that the direct relationship between compulsive buying and debt is positive in such a way that compulsive buying is a significant positive direct predictor of debt. It is our curiosity whether an opposite direction coming from debt to compulsive buying is also supported. From the articles being reviewed, only one article authored by Pradhan et al. (2018) studied the relationship of debt affecting compulsive behaviour and it found that there is no significant relationship. In sum, most of the studies that attempted to find a direct relationship between compulsive buying behaviour and debt found a positive relationship coming from compulsive buying towards debt, but not vice versa. Furthermore, there is no studies that found a negative relationship between these variables.

3.2 Indirect Relationship between Compulsive Buying and Debt

The relationship between compulsive buying and individual debt have also been found to be indirect in some of the studies. This indirect relationship can be in the form of either:

The relationship between compulsive buying and debt is mediated by another variable; or Compulsive buying being a mediator between debt and another variable

In a study by Mrad & Chi (2020) about the coexistence of compulsive buying and brand addiction, and their impacts on debt avoidance, self-esteem and life happiness, it was found that the relationship between compulsive buying behaviour and debt avoidance is partially mediated by brand addiction. It is interesting to learn that these addictive consumption behaviours (compulsive buying and brand addiction) have impacts on debt avoidance in opposite directions where compulsive buying is negatively related to debt avoidance and brand addiction is positively related to debt avoidance, and brand addiction has a mediating effect between compulsive buying and debt avoidance. Pradhan et al. (2018) described credit card use as a variable that may impact compulsive buying, a relationship that is unusually found in other studies. Most other studies attempted to find a relationship coming from compulsive buying behaviour towards the use of debt, but Pradhan et al. hypothesized an opposite direction. The result showed that the hypothesis of direct relationship credit card use affecting compulsive buying is not supported, but a test for mediating effect supports that there is a full mediation between credit card use and compulsive buying mediated by impulsive buying behaviour. In addition to evidences of another variable being a mediator between compulsive buying and individual debt as discussed in Mrad & Chi (2020) and Pradhan et al. (2018), there is also a study that found compulsive buying behaviour being a mediator between another variable and individual debt as observed in a study by Potrich & Vieira (2018). In their study, Potrich & Vieira described the relationship between financial literacy and propensity to indebtedness had indirect relationship, mediated by compulsive buying and jointly by materialism and compulsive buying. It is interesting to note that all the studies that observed indirect relationship between compulsive buying and individual debt are all from integrated models that attempted to find interaction effects among a few variables, not merely simple studies to find a relationship between compulsive buying and debt.

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Article Relationship Comment

Mrad & Chi (2020) Compulsive buying  Debt avoidance

Compulsive buying  Brand addiction  Debt avoidance

The relationship between compulsive buying and debt is partially mediated by brand addiction

Pradhan et al. (2018) Credit card use  Impulsive buying  Compulsive buying

The relationship between debt and compulsive buying is fully mediated by impulsive buying

Potrich & Vieira (2018) Financial literacy  Compulsive buying  Propensity to indebtedness

Financial literacy  Materialism and Compulsive buying  Propensity to indebtedness

The relationship between financial literacy and propensity to indebtedness is being mediated by compulsive buying and jointly by materialism and compulsive buying

4. Implications

The findings from the articles review provide an insight about compulsive buying being a factor that influences individual debt. The predicting relationship is positive, but the relationship can be direct as well as indirect with the presence of a mediator. The findings can be useful for researchers to develop a research framework in future research.

5. Conclusion

This review concluded that there are significant positive direct relationship of compulsive buying impacting individual debt and significant indirect relationship between these two variables. The indirect relationship between compulsive buying and debt occurred with the presence of a mediating variable such as brand addiction and impulsive buying. There was also an evidence that compulsive buying behaviour being a mediator between financial literacy and propensity to indebtedness.

References

Achtziger, A., Hubert, M., Kenning, P., Raab, G., & Reisch, L. (2015). Debt out of control: The links between self-control, compulsive buying, and real debts. Journal of Economic Psychology, 49, 141–149. https://doi.org/10.1016/j.joep.2015.04.003

Joireman, J., Kees, J., & Sprott, D. (2010). Concern with Immediate Consequences Magnifies the Impact of Compulsive Buying Tendencies on College Students’ Credit Card Debt. The Journal of Consumer Affairs, 44(1), 155–178. https://doi.org/10.1111/j.1745-6606.2010.01161.x Malaysia Household Debt: % of GDP. (2021). CEIC Data. https://www.ceicdata.com/en/indicator/malaysia/household-debt--of-nominal-gdp Mrad, M., & Chi, C. (2020). Comorbidity of compulsive buying and brand addiction : An examination of two types of addictive consumption.

Journal of Business Research, 113(May 2018), 399–408. https://doi.org/10.1016/j.jbusres.2019.09.023

O’Guinn, T. C., & Faber, R. J. (1989). Compulsive Buying: A Phenomenological Exploration. Journal of Consumer Research, 16(2), 147.

https://doi.org/10.1086/209204

Potrich, A. C. G., & Vieira, K. M. (2018). Demystifying financial literacy: a behavioral perspective analysis. Management Research Review, 41(9), 1047–1068. https://doi.org/10.1108/MRR-08-2017-0263

Pradhan, D., Israel, D., & Jena, A. K. (2018). Materialism and compulsive buying behaviour: The role of consumer credit card use and impulse

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buying. Asia Pacific Journal of Marketing and Logistics, 30(5), 1239–1258. https://doi.org/10.1108/APJML-08-2017-0164

Vieira, K. M., de Oliveira, M. O. R., & Kunkel, F. I. R. (2016). The Credit Card Use and Debt: Is there a trade-off between compulsive buying and ill-being perception? Journal of Behavioral and Experimental Finance, 10, 75–87. https://doi.org/10.1016/j.jbef.2016.03.001