…the following article (from the Harvard Business School’s “Working Knowledge” series) seems particularly revealed. Consumers who are credit-impaired spend more and faster, and they’re basically spending it on things like food and gas, not flat-screen TVs and Nintendo Wiis.
Photo by Michael Surtees.
Cole et al studied 1,543,553 individuals who had taxes prepared at H&R BLOCK, and found that income tax returns represent a substantial source of liquidity for much of the population.
The “cost of impatience” and the “cause of impatience”
Cole et al. find that consumers at the low end of the bracket FREQUENTLY DO NOT HAVE ENOUGH TO BUY NECESSITIES OF LIVING (like food and transportation) AND MUST SIGN LOANS TO OBTAIN THESE ITEMS; support is provided in that members of the population under study are found to be willing to forego some percentage of funds that are rightfully theirs in order to obtain necessities of living at an earlier point in time. It’s not surprising, but consider that it probably has some implications for the arguments of proponents of health spending accounts.
From the abstract:
…the primary merchant uses of refunds are to pay for necessities (grocery stores, gas stations, etc.), and the fraction of the refund spending devoted to these necessities is higher for those with greater revealed credit constraints…
Find the full-text PDF here: http://www.hbs.edu/research/pdf/08-083.pdf