Pay Me Later: Savings Constraints and the Demand for Deferred Payments
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 post-disbursement 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.
We are grateful for insightful comments from Achyuta Adhvaryu, Emily Breza, Lorenzo Casaburi, Michael Callen, Esther Duflo, Marcel Fafchamps, Xavi Gine, Reshma Hussam, Kelsey Jack, Namrata Kala, Dean Karlan, Craig McIntosh, Doug Staiger, Chris Woodruff, Dean Yang, Jonathan Zinman, and from seminar participants at the IPA Researcher Gathering on Financial Inclusion, Yale University, the Consumer Financial Protection Bureau, the University of Hong Kong, HKUST, Peking University, China Agricultural University, the Federal Reserve Bank of Philadelphia, the University of Utah, the University of Washington, MIEDC, CSAE, NEUDC, and ASSA. We gratefully acknowledge support from the Financial Services for the Poor Research Fund at Innovations for Poverty Action, sponsored by a grant from the Bill and Melinda Gates Foundation. We thank Rachel Sander for providing excellent research assistance and Ndema Longwe for his outstanding diligent work in managing data collection. This project would not have been possible without the help of the management at the Lujeri Tea Estate and the employees who participated in the study, who generously shared their time with us. This work was supported by the USDA National Institute of Food and Agriculture, Hatch project MIN14-164. This study was reviewed and approved by IRBs in Malawi (NCRSH, protocol number P.08/16/131) and at IPA (protocol number 13888). This study is registered with the AEA RCT Registry under registration number AEARCTR-0001554. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Lasse Brune & Eric Chyn & Jason Kerwin, 2021. "Pay Me Later: Savings Constraints and the Demand for Deferred Payments," American Economic Review, American Economic Association, vol. 111(7), pages 2179-2212, July. citation courtesy of