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Effect of Income Timing and Structure on Consumption and Savings Behavior in Malawi

The researchers evaluated whether paying workers on a weekly basis or in one lump sum affected their spending on temptation goods, and how the timing of wage payments changed the impact of both payment structures. This paper from IPA summaries the findings.

Monthly vs. weekly payment: Those in the monthly group spent on average MK 940 less of their total pay at the market (on the day that they received their pay) than those in the weekly group. They also spent a significantly smaller share of their pay on the day they received their pay—24 percentage points less than the weekly-group mean of 63 percent. Wasteful spending was not significantly different for the monthly group, however, suggesting that at least in this context the receipt of cash in one chunk does not lead recipients to overspend on goods they later regret.

Friday vs. Saturday payment: Being paid at the site of the local market on Saturday compared to Friday did not significantly increase expenditure levels or temptation spending.

In short, the findings suggest that it is better for organizations to offer to pay part of wages or cash transfers in lump sums. Likewise, projects designed to generate income for people in developing countries should allow beneficiaries to receive income in strategically-timed lump sums if they want to, in order to maximize benefits to recipients.

 

Innovation for Poverty Action
Innovations for Poverty Action (IPA) is a research and policy nonprofit that discovers and promotes effective solutions to global poverty problems. IPA brings together researchers and decision-makers to design, rigorously evaluate, and refine these solutions and their applications, ensuring that the evidence created is used to improve the lives of the world’s poor.

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