One way to spend less: Share your paycheck

Yes, in many cases says new research. Workers who receive daily wages, whether through their normal wage system or by accessing their pay in advance through an app, often spend more money than workers who do more traditional one- and two-week hours. Receive your salary in installments.

New personal-finance technology and the rise of the gig economy mean that workers can increasingly access their wages more often. Some fintech apps such as DailyPay—whose clients include large corporations such as Big Lots Inc—make it possible to receive daily payments, although such apps often charge a fee for the service. Some gig-economy companies also offer workers the option to pay daily. For example, Uber gives its employees the option to pay up to five times a day.

Advance access to one’s salary and daily wage payments is often marketed to low-wage earners as a way to avoid late bill payments and bank-overdraft fees.

According to new research, receiving a daily paycheck appears to make people spend more money than those who are paid less. “When people are paid more often they tend to spend more on the margins, perhaps buying a latte when they wouldn’t have bought otherwise,” says Wendy De La Rosa, assistant professor at the University of Pennsylvania’s Wharton School and co-author of the study. ” Study Prof. De la Rosa says study participants said that receiving a daily paycheck made them feel richer and more certain about their ability to cover their expenses.

On average, workers who were paid every workday spent about $18.56 more per month than workers who were paid once a week, and $20.65 more than workers who were paid biweekly. was done. The expenses of daily wage workers were also high.

While the researchers consistently found an association between paychecks and increased spending, they were unable to tease out causation from the data. Therefore, they did a series of laboratory experiments to better understand the relationship.

In one experiment, participants were paid either $140 per week or $1,400 per week. All participants started with $875 in their checking accounts and were then asked to make 28 spending decisions, one for each day in the simulation. During the experiment, participants could see the balance in their checking accounts.

Participants were asked to make decisions about covering basic expenses, such as: “Your heating bill is due. You owe $95. What do you do?” They were also asked to make discretionary spending decisions, including: “You had a tough few days. You can cook dinner at home or order some takeout for the family for $45. What would you do? Huh?” The authors found that participants who were paid daily spent more money than participants who were paid biweekly — $2,816.52 compared to $2,919.58.

After the experiment, the authors asked the participants whether they felt like they had a lot of money during the experiment. Those with daily paychecks felt subjectively richer, even though they often had lower daily balances in their checking accounts throughout the experiment.

The authors also found that those who paid daily said they felt more certain that they would have enough money to get through the simulation.

One of the major implications of the study is that workers need to be more aware of what it costs them to receive a daily wage. Some employees pay a fee to access their paychecks every day, which in combination with the observed tendency to overspend can further reduce savings. In some cases the daily-paycheck fee can exceed the interest rates charged on payday loans, Prof. De La Rosa says.

Pro. De la Rosa plans to study on this paper whether workers can be paid daily so as to motivate them to save a portion of their pay. The idea, she says, is that since more frequent paychecks cause people to feel subjectively richer, they may be more open to setting aside a higher percentage of their pay than they might otherwise.

“Changes in liquidity can really change people’s psyche,” she says.