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Once or Twice a Month? The Impact of Payment Frequency on Spending Behavior

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  • Laamanen, Jani-Petri
  • Matikka, Tuomas
  • Paukkeri, Tuuli

Abstract

We study how the frequency of income payments affects consumption and spending behavior using plausibly exogenous variation across Finnish pension benefit recipients with different surname initials. We find that twice-a-month payments remove the large consumption and spending hikes widely documented to be associated with monthly payments. Compared to those paid twice, those paid once a month end up spending more monthly instead of cutting back on spending late in the month. Consequently, once-a-month payments lead to saving less (or borrowing more), even if the significant extra spending on expensive durable goods is considered as saving.

Suggested Citation

  • Laamanen, Jani-Petri & Matikka, Tuomas & Paukkeri, Tuuli, 2022. "Once or Twice a Month? The Impact of Payment Frequency on Spending Behavior," Working Papers 147, VATT Institute for Economic Research.
    • Handle: RePEc:fer:wpaper:147
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    File URL: https://www.doria.fi/handle/10024/185851
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    References listed on IDEAS

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    1. Melvin Stephens Jr., 2003. ""3rd of tha Month": Do Social Security Recipients Smooth Consumption Between Checks?," American Economic Review, American Economic Association, vol. 93(1), pages 406-422, March.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    consumption; spending; consumption smoothing; household finance; time preference; payment frequency; social security; pensions; Social security; taxation and income distribution; D12; D14; D15; H55; I38; fi=Sosiaaliturva|sv=Social trygghet|en=Social security|; fi=Tulonjako ja eriarvoisuus|sv=Inkomstfördelning och ojämlikhet|en=Income distribution and inequality|;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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