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Cash-back rewards: Effects on spending and debt accumulation

Author

Listed:
  • Agarwal, Sumit
  • Ang, Swee Hoon
  • Wang, Yonglin
  • Zhang, Jian

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. Cardholders joining the rewards program 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 by other card issuers. 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.

Suggested Citation

  • Agarwal, Sumit & Ang, Swee Hoon & Wang, Yonglin & Zhang, Jian, 2026. "Cash-back rewards: Effects on spending and debt accumulation," Journal of Banking & Finance, Elsevier, vol. 184(C).
    • Handle: RePEc:eee:jbfina:v:184:y:2026:i:c:s0378426625002365
    DOI: 10.1016/j.jbankfin.2025.107616
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    Keywords

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    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G40 - Financial Economics - - Behavioral Finance - - - General

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