Pay Me Later: Savings Constraints and the Demand for Deferred Payments

We 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 rou...

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Bibliographic Details
Published in:The American economic review 2021-07, Vol.111 (7), p.2179-2212
Main Authors: Brune, Lasse, Chyn, Eric, Kerwin, Jason
Format: Article
Language:English
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Summary:We 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.
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.20191657