The Impact of Payment Frequency on Subjective Wealth Perceptions and Discretionary Spending

Abstract

A growing trend is for consumers to get paid more often, resulting in more frequent, yet smaller paychecks. However, surprisingly little is known about whether and how payment frequency impacts consumer behavior. The current work addresses this gap. 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. This effect is replicated across five controlled lab studies, providing evidence for a causal relationship between payment frequency and spending. This effect is explained by changes in consumers’ subjective wealth perceptions. Higher payment frequencies increase consumers’ subjective wealth perceptions, which increase spending. Moreover, the effect of payment frequency is not simply a function of objective wealth differences, as those paid more frequently can feel greater subjective wealth perceptions, even when objective wealth is greater for those paid less frequently. The effect of payment frequency on subjective wealth perceptions is attenuated in contexts in which consumers have less uncertainty in predicting their resource sufficiency throughout a period. This work suggests that consumers’ perceptions and their resulting behaviors are based not just on how much resources they receive, but also on when they receive their resources.