Pay Me Later: Savings Constraints and the Demand for Deferred Payments
AbstractWe study a simple savings scheme that allows workers to defer receipt of part of their wages for three months at zero interest. The scheme significantly increases savings during the deferral period, leading to higher postdisbursement spending on lumpy goods. Two years later, after two additional rounds of the savings scheme, we find that treated workers have made permanent improvements to their homes. The popularity of the scheme implies a lack of good alternative savings options. The results of a follow-up experiment suggest that demand for the scheme is partly due to its ability to address self-control issues.
CitationBrune, Lasse, Eric Chyn, and Jason Kerwin. 2021. "Pay Me Later: Savings Constraints and the Demand for Deferred Payments." American Economic Review, 111 (7): 2179-2212. DOI: 10.1257/aer.20191657
- D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
- J31 Wage Level and Structure; Wage Differentials
- O12 Microeconomic Analyses of Economic Development
- O13 Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products