What the frequency of your pay means for financial well-being

Workers who access their wages on demand often develop a false sense of their own wealth and spend more, according to new research from Wharton’s Wendy De La Rosa.

More businesses are offering daily wages via an app as a benefit to lure workers, especially during a tight labor market exacerbated by the COVID-19 pandemic. For Wharton marketing professor Wendy De La Rosa, whose research focuses on consumer behavior, this kind of immediate access to wages prompts her to think about what happens to spending and saving patterns when workers are paid more frequently.

Person sitting on bench with a smartphone and credit card surrounded by shopping bags.

“We’re moving into this world where people have access to their funds much more rapidly than they used to a couple of years ago,” De La Rosa says. In a co-authored study, De La Rosa finds that people who are paid more often tend to spend more because their perception of their personal wealth changes—they think they have more money than they actually do.

“When you get paid every day, you have less uncertainty about whether or not you’re going to make it through the month because you feel like, ‘I’m going to get money tomorrow,’” De La Rosa explains. “You end up spending more on things you don’t necessarily need. You’re more likely to eat out or buy nondiscretionary items.”

The study, titled “The Impact of Payment Frequency on Consumer Spending and Subjective Wealth Perceptions,” is published in the Journal of Consumer Research.

For the study, De La Rosa and her co-author analyzed the spending habits of 30,000 American consumers using data provided by a financial services company. They also conducted several lab simulations to gather additional data. Throughout the research, they found a consistent correlation between higher spending and higher pay frequency. The correlation was stronger among lower-paid workers than higher-paid ones.

“If we take somebody who gets paid once a month and give them their pay every weekday, our data would suggest that they would end up spending over $250 more throughout the year, which is more than double what the average American spends on books, newspapers, and magazines combined,” De La Rosa says. “This has real dollars behind it, and it may have real consequences for consumers’ financial well-being.”

Read more at Knowledge at Wharton.