Timing to the Statement: Understanding Fluctuations in Consumer Credit Use

Sumit Agarwal (), Amit Bubna () and Molly Lipscomb
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Sumit Agarwal: Department of Finance, National University of Singapore, Singapore, 129790
Amit Bubna: Independent affiliation

Management Science, 2021, vol. 67, issue 8, 5124-5144

Abstract: 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.

Keywords: household finance; banking; credit cards; consumer behavior; consumer rationality; mental accounting (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:67:y:2021:i:8:p:5124-5144

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