The impact of payment timing variations on consumer spending

Payment timing variations, or variations in the temporal patterns of when income is dispersed (Parsons and Van Wesep 2013), are a fundamental aspect of consumers' finances. However, scant research has focused on how payment timing variations impact consumers' behavior. In my dissertation, I seek to address this research gap by examining two essential sub-factors of payment timing: payment frequency (the number of times a consumer receives income within a given period) and intraweek payday timing (the day of the week in which consumers receive their income). In Chapter 1, I examine the role that payment frequency plays on consumers' spending and subjective wealth perceptions. Payment frequency is a fundamental yet underexplored feature of consumers' finances. As higher payment frequencies are becoming more prevalent, consumers are receiving more frequent yet smaller paychecks. An analysis of income and expenditure data of over 30,000 consumers from a financial services provider demonstrates a naturally occurring relationship between higher payment frequencies and increased spending. A series of lab studies support this finding, providing causal evidence that higher (vs. lower) payment frequencies increase spending. The effect of payment frequency on spending is driven by changes in consumers' subjective wealth perceptions. Specifically, higher payment frequencies reduce consumers' uncertainty in predicting whether they will have enough resources throughout a period, increasing their subjective wealth perceptions. As such, situational factors that reduce prediction uncertainty for those paid less frequently (e.g., the timing of consumers' expenses, income levels) moderate the impact of payment frequency. The effects of payment frequency on subjective wealth and spending can occur even when objective wealth favors those with lower payment frequencies. More broadly, the current work underscores a need to understand how timing variations in consumers' income impact their perceptions, behaviors, and general well-being. In Chapter 2, I examine the role of intraweek payday timing on consumers' spending and deserving justifications. Intraweek payday timing (i.e., the day of the week a consumer receives their paycheck) is a fundamental aspect of consumers' income. While consumers can receive their income on any day of the week, more than half of American workers receive their paychecks on Fridays. Surprisingly, despite the prevalence of Friday paydays, little is known about how this intraweek payday timing affects consumer spending. This research focuses on addressing this research gap and demonstrates that Friday paydays (vs. other paydays) increase consumers' total spending throughout a period. A real-world field study that manipulated the weekly paydays of 178 male Indian laborers demonstrated that a Friday payday (vs. a Monday payday) increased consumers' weekly spending by 20%. We suggest that Friday, which serves as a unique temporal landmark (marking both the beginning of the weekend and the end of the workweek), increases deserving justifications, which drive consumer spending. In line with this theorizing, the effect of a Friday payday was attenuated when Friday was no longer a unique temporal landmark (e.g., when Fridays did not mark the end of their workweek or the start of their weekend). A series of pre-registered experiments replicate the field study findings and suggest that Friday paydays increase consumers' deserving justifications, consequently increasing their spending. Across these chapters, I answer an important outstanding question in both marketing and economics. Do payment timing variations influence consumers' spending behaviors? And if so, how? The data outlined in these chapters demonstrate that payment timing variations influence consumers' perceptions and spending. These findings challenge the assumptions put forth by the Permanent Income Hypothesis (Friedman 1957), suggesting that absent any liquidity constraints, payment timing variations should not impact consumer spending. I hope that these chapters help generate new research into how different resource timing variations impact consumers. In these chapters, I analyze two types of payment timing variations (payment frequency and intraweek payday timing). Future research should focus on other payment timing variations such as income volatility (the variance in a consumers' income within a given period) or advance versus in arrears payments. Furthermore, these chapters focus on one type of consumer behavior: spending. It is important to understand the long-term impacts of these payment timing variations on other types of financial behaviors, including savings, investing, borrowing, and lending. Finally, future research might consider how the timing of other types of resources (e.g., time) impacts consumers' perceptions. Indeed, a pilot study suggests that consumers believe they have more leisure time when they receive smaller amounts of leisure time daily compared to larger amounts of leisure time once a week (see appendix O for more details). In sum, the current work underscores the need to understand the impact of different resource timing variations on consumers' perceptions, behaviors, and general well-being. Chapter 1 (De La Rosa and Tully 2021) was published in the Journal of Consumer Research. Chapter 2 (De La Rosa, Turner, Aaker and Mishra) is under review at the Journal of Consumer Research. I am the first author in each of these essays. Each chapter employs the use of first-person plural pronouns to emphasize the critical contributions made by my collaborators

Keywords: Business.
Advisor: Aaker Jennifer Lynn
Simonson Itamar
Ariely Dan
Tully Stephanie