Notes on De La Rosa & Tully (2022) – Payment Frequency and Consumer Spending
Paper: “The Impact of Payment Frequency on Consumer Spending and Subjective Wealth Perceptions,” Journal of Consumer Research, 48 (6), 991–1009.
Main Topic or Phenomenon
This paper examines how payment frequency (the number of times consumers receive income within a given period) affects consumer spending behavior and subjective wealth perceptions. The phenomenon occurs as employment trends shift toward more frequent, smaller paychecks due to gig economy growth, technological advances, and employer flexibility in payroll processing.
Theoretical Construct
Subjective Wealth Perceptions: Consumers’ assessments about the sufficiency of their financial resources relative to a benchmark (typically spending needs). These perceptions are distinct from objective wealth and represent a subjective evaluation of resource adequacy.
Payment Frequency: The number of times a consumer receives income within a given period, ranging from daily to monthly disbursements while holding total income constant.
Prediction Uncertainty: Consumers’ uncertainty in predicting whether they will have sufficient resources throughout a period, which varies based on the temporal patterns of income inflows and expense outflows.
Key Findings
- Higher payment frequencies increase consumer spending both in frequency of purchases and total amount spent
- The effect operates through a mediated pathway: Higher payment frequency → Lower prediction uncertainty → Higher subjective wealth perceptions → Increased spending
- Effects persist even when those with higher payment frequencies have objectively less money
- Real-world data from 30,000+ consumers confirms the relationship between payment frequency and spending
- Access to optional higher payment frequency (daily pay services) also increases spending
Boundary Conditions and Moderators
Income Level: The effect attenuates at higher income levels where consumers face little uncertainty in predicting resource sufficiency.
Expense Timing: When expenses are aggregated (weekly vs. daily), the effect of payment frequency on subjective wealth disappears because both payment frequency groups experience similar patterns of resource accumulation/depletion.
Individual Differences: For optional access to higher payment frequency, the effect is stronger for consumers with higher intertemporal discount rates (more impatient individuals).
Building on Previous Work
The paper challenges the Permanent Income Hypothesis, which suggests payment frequency shouldn’t affect spending since total income remains constant. It extends prior payment frequency research that focused only on when consumers spend (consumption smoothing) to examine how much they spend.
The work builds on subjective wealth literature by identifying a novel antecedent (payment timing) beyond previously studied factors like absolute resources, relative comparisons, and balance sheet composition. It also contributes to the frequency effects literature by showing how temporal patterns of identical amounts can influence consumer behavior.
Major Theoretical Contribution
The paper introduces prediction uncertainty as a key psychological mechanism linking payment frequency to subjective wealth and spending. It demonstrates that the temporal structure of identical financial flows can systematically bias wealth perceptions through uncertainty reduction, expanding our understanding of how timing affects consumer psychology beyond mere liquidity effects.
Major Managerial Implication
Organizations implementing higher payment frequencies (daily pay, earned wage access) should recognize these services may increase rather than decrease employee financial stress by promoting higher spending. The 428% APR equivalent of some daily pay services, combined with increased spending behavior, suggests potential consumer welfare concerns. Employers and financial service providers need to consider the behavioral consequences, not just the liquidity benefits, of payment frequency decisions.
Unexplored Theoretical Factors
Cognitive Load: How might the mental effort of processing more frequent, smaller amounts affect the payment frequency-spending relationship?
Reference Point Formation: Do consumers form different reference points for spending when receiving frequent small amounts versus infrequent large amounts?
Social Comparison: How might payment frequency affect spending when consumers can observe others’ payment schedules or spending patterns?
Goal Pursuit: Would consumers with specific savings goals or financial objectives respond differently to payment frequency variations?
Category-Specific Effects: The paper hints that discretionary/hedonic purchases may be more affected—how might payment frequency differentially impact necessities versus luxuries?
Temporal Distance: How might consumers’ temporal focus (near vs. far future) moderate the relationship between payment frequency and spending?
Financial Sophistication: Beyond basic financial literacy, how might advanced financial knowledge or professional experience moderate these effects?
Cultural Factors: Would the payment frequency effect vary across cultures with different attitudes toward money, saving, or financial planning?
Reference
De La Rosa, Wendy and Stephanie M Tully (2022), “The Impact of Payment Frequency on Consumer Spending and Subjective Wealth Perceptions,” Journal of Consumer Research, 48 (6), 991–1009.
