Money Management, Self-Control and Intra-Month Consumption

Present-biased consumers spend more if they predominantly pay by card than if they predominantly pay by cash. We study discretionary spending, payment choice, and money management for a representative sample of consumers using payment-diary and payment-survey data. We match spending and payment behavior to indicators of present bias elicited from a behavioral survey for the same consumers. We find that consumers with high levels of present bias spend more if they use cashless payment instruments rather than cash. This is not the case for consumers with low levels of present bias. We find only weak evidence that present-biased consumers adjust their choice of payment instrument to self-control their spending. Our findings are consistent with a model in which (i) present-biased consumers are partly naïve, (ii) consumption is subject to a money-in-advance constraint, and (iii) the tightness of this liquidity constraint varies with the choice of payment instrument and intra-month money management.