Assisting mental accounting using smartphones: Increasing the salience of credit card transactions helps consumer reduce their spending

Timing to the Statement: Understanding Fluctuations in Consumer Credit Use

Management Science ◽

10.1287/mnsc.2020.3720 ◽

2020 ◽

Author(s):

Sumit Agarwal ◽

Amit Bubna ◽

Molly Lipscomb

Keyword(s):

Credit Card ◽

Consumer Credit ◽

Liquidity Constraints ◽

Mental Accounting ◽

Debit Card ◽

Mixed Support

We show that consumers spend 15% more per day in the first week following the receipt of a credit card statement than in the days just prior to the statement. This increase in spending includes both an increase in the likelihood that they use the credit card in the first weeks following their statement and an increase in transaction amount on days they use the credit card. In contrast to the effect on credit card spending, debit card spending is unaffected by credit card statement issuance, suggesting that consumers are not simply switching among modes of payment. Our estimates are based on exogenous variation from bank-assigned statement dates. We propose and test several alternative explanations to this spending puzzle: optimization of the free float, salience effect of the credit card statement, mental accounting, liquidity constraints, and automatic payments. We find that the consumers most apt to spend early in the credit card cycle tend to be those who do not revolve balances and are not close to their credit limit. Thus, this paper documents a puzzle with mixed support for several alternative explanations. This paper was accepted by David Simchi-Levi, finance.

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How to Design a Composite Reward Program for Credit Card Users Based on Prospect Theory and Mental Accounting

Korea Business Review ◽

10.17287/kbr.2017.21.1.185 ◽

2017 ◽

Vol 21 (1) ◽

pp. 185

Author(s):

Yong Wan Park ◽

Chung Hur

Keyword(s):

Prospect Theory ◽

Credit Card ◽

Mental Accounting ◽

Reward Program

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Asymmetric Consumption Smoothing

The American Economic Review ◽

10.1257/aer.20181735 ◽

2021 ◽

Vol 111 (1) ◽

pp. 192-230

Author(s):

Brian Baugh ◽

Itzhak Ben-David ◽

Hoonsuk Park ◽

Jonathan A. Parker

Keyword(s):

Life Cycle ◽

Credit Card ◽

Liquidity Constraints ◽

Mental Accounting ◽

Consumption Smoothing ◽

Credit Card Debt ◽

Life Cycle Model ◽

Cycle Model ◽

Level Data ◽

Tax Refunds

Analyzing account-level data from an account aggregator, we find that households increase consumption when they receive expected tax refunds, as if they face liquidity constraints. However, these same households smooth consumption when making payments in other years, primarily by transferring funds among liquid accounts. Even households carrying credit card debt smooth consumption when making payments, and even highly liquid households spend out of refunds. This behavior is inconsistent with pure liquidity constraints or hand-to-mouth behavior and is most consistent with a mental accounting life-cycle model. (JEL D12, E21, G51, H24, H31)

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Borrowing on the Wrong Credit Card? Evidence from Mexico

The American Economic Review ◽

10.1257/aer.20120273 ◽

2017 ◽

Vol 107 (4) ◽

pp. 1335-1361 ◽

Cited By ~ 22

Author(s):

Alejandro Ponce ◽

Enrique Seira ◽

Guillermo Zamarripa

Keyword(s):

Representative Sample ◽

Credit Card ◽

Large Fraction ◽

Credit Cards ◽

Mental Accounting ◽

Limited Attention ◽

Relative Prices ◽

High Interest ◽

Using Data ◽

The Way

We establish new facts about the way consumers allocate debt among their credit cards using data for a representative sample of cardholders in Mexico. We find that relative prices are weak predictors of the allocation of debt, purchases, and payments. Consumers allocate a large fraction of their debt to high-interest cards, incurring a cost of 31 percent above the minimum. Using an experiment, we find that consumers do not substitute in the price margin, although they respond to salient temporary low-interest offers. We conclude that limited attention and mental accounting best rationalize our results and discuss implications for the market. (JEL D14, G21, O12, O16)

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