Payment Frequency Impacts Consumer Spending

Payment frequency is a fundamental feature of getting paid. But, does the frequency at which consumers get paid influence their behavior? In a recently published Journal of Consumer Research article (an Editor’s choice article available for free), Wendy De La Rosa and Stephanie Tully focus on answering this critical question. They share their findings with us below:

Many consumers, particularly low-income consumers, are experiencing higher payment frequencies (i.e., smaller, more frequent paychecks). For example, up until 2017, most Walmart workers got paid every week. Now, they can get paid every day. And so can Amazon workers, Uber drivers, and McDonald’s employees. Given this rising trend, we wanted to determine whether and how higher payment frequencies (i.e., smaller, more frequent paychecks) influence consumers’ perceptions and behaviors compared to lower payment frequencies (i.e., larger, less frequent paychecks).

We discovered that payment frequency is an important factor in how consumers think about their finances. When consumers are paid more (vs. less) frequently, they have higher subjective wealth perceptions, as they have less uncertainty over whether or not they have enough resources to make it through the month. These higher wealth perceptions lead consumers to increase their spending. In other words, when consumers are paid more frequently, they feel wealthier, and as a result, they spend more.

We first analyzed the income and spending of over 30,000 consumers who were part of a US banking platform. In this dataset, getting paid more frequently was associated with higher monthly spending. This relationship remained after accounting for consumers’ total monthly income, the particular month examined, or consumer-level fixed effects. Our findings suggest that going from monthly pay to daily pay would increase a consumer’s total spending by $260 a year, more than double what the average US consumer spends on books, newspapers, and magazines combined. Moreover, these effects were more prominent among low-income consumers than high-income consumers.

Altmetric Related to This Article

We then conducted a series of lab studies, where we were able to manipulate payment frequency. In one study, we had participants go through a life simulation, where they simulated life for “28 days.” In the life simulation, participants had to work, pay bills, and make spending decisions just as they would in real life. We randomly assigned participants to one of two conditions: lower vs. higher payment frequency. Participants in the lower payment frequency condition were paid every two weeks, whereas participants in the higher payment frequency condition were paid every weekday. At the end of the life simulation, those in the higher payment frequency condition spent $103 more than those in the lower payment frequency condition. They also reported feeling less uncertainty over their ability to have enough resources to make it through the life simulation and having higher subjective wealth perceptions. In other words, even though those who got paid more frequently had less money at the end of the life simulation, they felt richer. Their elevated feelings of wealth explained their increased spending. In subsequent studies, we found that the effects of payment frequency on wealth perceptions and spending persisted even when those with lower (vs. higher) payment frequencies were objectively more wealthy and when consumers had to request additional paychecks rather than receiving them automatically.

While some surveys suggest that consumers want immediate access to their earned wages, our results indicate the need to consider the potential downstream consequences of such access. For instance, it is unclear how the resulting increase in spending from higher payment frequencies will impact consumers’ well-being. An increase in spending could, over time, increase consumers’ need to borrow and worsen their financial situations, particularly for lower-income populations. More broadly, our work underscores the importance of understanding the impact of different resource timing variations on consumers’ perceptions, behaviors, and general well-being.

Read the full paper:

Journal of Consumer Research, Volume 48, Issue 6, April 2022, Pages 991–1009,