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American Economic Review Vol. 111 No. 7 2021

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

Lasse Brune1; Eric Chyn2; Jason Kerwin3

1 Global Poverty Research Lab, Kellogg School of Management, Northwestern University (email: ) · 2 Department of Economics, Dartmouth College and NBER (email: ) · 3 Department of Applied Economics, University of Minnesota (email: )

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 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.

DOI
10.1257/aer.20191657
Volume
111
Issue
7
Pages
2179-2212
Language
en
Sources
openalex bibtex:phds-export.bib crossref

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