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

81 Pages Posted: 9 Apr 2021

See all articles by Lasse Brune

Lasse Brune

Northwestern University - Buffett Institute for Global Studies

Eric Chyn

The University of Texas at Austin

Jason Kerwin

University of Minnesota - Twin Cities - Department of Applied Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 19, 2021

Abstract

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 post-disbursement 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.

Keywords: savings constraints, income timing, commitment savings, direct deposit, labor supply

JEL Classification: D14, J22, J33, O12, O15

Suggested Citation

Brune, Lasse and Chyn, Eric and Kerwin, Jason, Pay Me Later: Savings Constraints and the Demand for Deferred Payments (March 19, 2021). Available at SSRN: https://ssrn.com/abstract=3822087 or http://dx.doi.org/10.2139/ssrn.3822087

Lasse Brune

Northwestern University - Buffett Institute for Global Studies ( email )

1902 Sheridan Road
Evanston, IL
United States

HOME PAGE: http://https://sites.google.com/site/brunelassef/

Eric Chyn

The University of Texas at Austin ( email )

TX

Jason Kerwin (Contact Author)

University of Minnesota - Twin Cities - Department of Applied Economics ( email )

MN
United States

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