Pay Me Later: Savings Constraints and the Demand for Deferred Payments

Abstract

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. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.