They analyzed possible proxies for financial sophistication starting from age, pensions and employment to banking fees paid, savings and overdraft debt, and whether the spouse is linked, observing that individuals who lose less interest have a higher spending response than those who lose more.
They explored the margin of spending, finding out that individuals are 11 percent more prone to go on any shopping trip on paydays, spending more than they would on a shopping day when they don’t get paid. In their in-depth analysis, the authors differentiated between regular and irregular income and studied whether the payday responses are common for a larger part of the population. “The average user is 40 years old, 15 percent of users are pensioners, 50 percent of users are female, 20 percent have children, and 8 percent are unemployed.” The “demographic statistics are remarkably similar to the overall Icelandic population,” write the authors. The research shows that more than half of the population increases spending by more than 25 percent on payday. Since almost all payments in Iceland are performed electronically, they are easily traceable through the app. In October 2014, 25 percent of Iceland households were using Meniga, which is currently adopted in 13 countries, with more to join in with banks and financial institutions worldwide. This platform allows individuals to manage their bank accounts and credit cards painlessly and see all of them in one single place. To document payday responses of individuals across their earned income spectrum, the researchers used Iceland data from 2011 to 2015, generated by a personal finance aggregation app called Meniga – Europe’s leading private finance management provider. New research looks at why money burns a hole in people’s pockets.Īssistant Professor Michaela Pagel of Columbia Business School and Arna Vardardottir of Copenhagen Business School authored a new research, which shows that people earning regular and irregular income tend to spend on both necessary and discretionary goods and services as soon as they get paid. Just the thought that the money’s there, ready to serve you, is thrilling.
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