Cash-back Rewards, Spending, and Debt Accumulation

65 Pages Posted: 24 Jul 2023 Last revised: 18 May 2024

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Swee Hoon Ang

National University of Singapore (NUS) - Department of Marketing

Yonglin Wang

Lingnan University

Jian Zhang

The University of Hong Kong - Faculty of Business and Economics

Date Written: March 1, 2023

Abstract

This paper assesses the impact on consumption and debt repayment from a credit card
promotional campaign offering cash-back rewards. Using account-level administrative data
from a large U.S. financial institution, we employ a generalized difference-in-differences
design and find that even with a small 1% cash-back incentive, the rewards program
leads to a substantial change in consumer behavior. A shopping momentum is observed:
consumers make purchases more frequently, with 0.25-0.27 more purchase counts than
before the promotional program. They increase their credit card spending by 32% and their
debt by 8%, with such behavior persisting in the long run. Evidence from credit bureau
confirms that the higher spending and debt are not driven by cross-card substitution or
similar promotions offered by other card issues. Different consumer segments respond
differentially to the promotional campaign. Consumers with a higher level of liquidity
constraints and who are less financially literate demonstrate more pronounced responses.

Keywords: consumption, spending, credit card, behavioral bias, rewards, debt repayment

JEL Classification: D1, D8, G21, G40

Suggested Citation

Agarwal, Sumit and Ang, Swee Hoon and Wang, Yonglin and Zhang, Jian, Cash-back Rewards, Spending, and Debt Accumulation (March 1, 2023). Available at SSRN: https://ssrn.com/abstract=4510034 or http://dx.doi.org/10.2139/ssrn.4510034

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Swee Hoon Ang

National University of Singapore (NUS) - Department of Marketing ( email )

Kent Ridge Crescent
Singapore 119260
Singapore

Yonglin Wang

Lingnan University ( email )

8 Castle Peak Road
Lingnan University
Hong Kong, New Territories
China

Jian Zhang (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Faculty of Business and Econoics
Pokfulam Road
Hong Kong
Hong Kong

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