How do we spend throughout the month?
The distribution of consumer spending over the month, a key question for understanding consumer behaviour, has not yet been studied in the depth it deserves because of the scarcity of high-frequency public data. How do consumers allocate their spending week by week? How much more do they spend at the beginning of the month, which is when most people are paid? Do we consume with the same intensity regardless of our age or our income? Thanks to the use of CaixaBank’s internal data on a daily frequence, we are able to carefully analyse the time patterns of consumption and answer these questions.
Based on fully anonymised internal data on payments and cash withdrawals between 2017 and 2019 using cards issued by CaixaBank,37 we can confirm that the percentage of spending is highest during the first week of the month38 and decreases throughout the second and third weeks, before picking up slightly in the fourth week (see the chart below).39 The fact that a significant part of the sample analysed receives their income during the last days of the month40 is one of the reasons why the percentage of spending picks up in the fourth week.
- 37. We have focused on a pre-pandemic period as policy changes regarding restrictions on business and mobility during the health crisis could significantly alter our results.
- 38. This result is consistent with a study using daily card spending data in Denmark. See Andersen, A. et al. (2020). «Consumer responses to the COVID-19 crisis». VOX, CEPR Policy Portal.
- 39. In those cases where a week falls between two different months, we have assigned the week to the month that contains the most days from that week (a minimum of four days). Likewise, in order to be able to compare the distribution of expenditure in different months, we have eliminated from our analysis those months with five weeks; i.e. we were left with only those containing four weeks.
- 40. According to our internal data, 54.8% of salaries are paid at the end of the month; specifically on the 27th-31st, with the 30th being the most common day.
There are three possible explanations (which are not mutually exclusive) why consumers spend more just after being paid. The first is associated with a consumer profile that consumes more as soon as they can. We all know someone, perhaps even ourselves, who enjoys the luxury of dining out or getting away for the weekend at the beginning of the month but tightens their belt at the end.
Economic theory tells us there are two reasons behind this behaviour: impatience and temporal inconsistency. The first, simply states that some people value present rewards more than future ones, resulting in them consuming more as soon as they have fresh income rather than spreading their consumption evenly over the month. The second reason is a somewhat less intuitive concept, although it has also been widely studied.41 This argues that there are other types of individuals who, despite valuing their future well-being (they are not impatient), are lacking in willpower and therefore end up focusing on the present when making their consumption decisions, without taking tomorrow into account. In other words, these consumers exhibit a short-sightedness that becomes accentuated in the week they receive their income.
The second explanation is that consumers choose to concentrate their spending in the first week of the month for organisational reasons. For example, in order to save time they may decide to go to the supermarket and do the whole month’s expenditure during the first week, instead of doing weekly shopping. Another example would be a monthly travel pass, which may be bought at the beginning of the month but is used throughout the weeks. In this respect, these consumers are neither impatient nor short-sighted, even though they concentrate their spending in the first week of the month, as they distribute their consumption evenly.
The third explanation for tending to spend more at the beginning of the month revolves around cash withdrawals. According to an ECB study42 that takes an in-depth look at the use of cash by households in the euro area, when asked what the two biggest advantages of handling cash were, 42% of respondents said that it allowed them to keep better track of their spending. This response was the most popular and points to the fact that cash could act as a commitment device. In other words, in the first week consumers might withdraw from an ATM a significant portion of the cash they estimate they will need during the month but would consume it evenly.43
To find out which of the above explanations is more important, we have broken down the distribution of spending per week (shown in the chart above) into cash withdrawals and card spending (see the chart below). Considering that cash withdrawals show the highest concentration in the first week, we can conclude that the use of cash as a commitment device is a factor to be taken into account. On the other hand, if we look at card spending, we can see that its distribution is much more uniform with a percentage close to 25% in the four weeks of the month.
- 41. The beginnings of this area of study can be traced back to the academic article R.H. Strotz (1955). «Myopia and Inconsistency in Dynamic Utility Maximization». The Review of Economic Studies.
- 42. See Esselink, H. and Hernández, L. (2017). «The use of cash by households in the euro area». ECB Occasional Paper Series.
- 43. A fourth factor that would also explain the higher percentage of expenditure observed in the first week of the month is related to the fact that it is on these days when payments via most direct debit bills are collected (water, electricity, internet, rent, loan repayments, etc.). However, as neither direct debits nor transfers are included in our analysis, we can rule out this fourth explanation.
Distribution of spending over the month
(% corresponding to each week)
Taking advantage of the granularity of our internal data, we can go a step further and analyse whether the conclusions drawn for the aggregate data are the same for the different income groups and generations. In the first case we divided CaixaBank clients as a whole into low-income (up to 1,000 euros per month) and high-income (over 2,000 euros per month), while in the second case we divided them into young people (aged 16 to 29), young adults (aged 30 to 49) and senior adults (aged 50 to 64).
The left scale of the chart below shows the breakdown of total expenditure by income group. Regardless of the wage level, we can see that the percentage of spending is still higher during the first week of the month and decreases in the second and third week (on average for all the months analysed). That said, there is some heterogeneity between the low and high-income groups since the distribution of spending is more unequal for the former. Nevertheless, the bulk of the difference observed in total expenditure can be explained by the behaviour of cash withdrawals, as can be seen in the central part of the same chart. In other words, if we look at card spending (right scale of the chart), we can see that it is distributed more similarly than total spending over the month in the two income groups.
These results indicate the importance of the use of cash as a commitment device, especially for low-income groups, which should not be surprising considering they have more limited resources and must therefore have a clearer plan for their spending.
Distribution of spending over the month by income group
(% corresponding to each week)
As for the analysis by generation, the conclusions drawn regarding the distribution of spending by week also hold true, regardless of age: spending is higher in the first week of the month and lower in subsequent weeks. However, it can also be seen that young people spend the most unevenly throughout the month while senior adults spend the least unevenly.44 Likewise, as with the aggregate results and by income group, expenditure appears to be distributed more evenly when only card spending is taken into account, as can be seen in the chart below.
- 44. This is consistent with the economic literature that documents a negative relationship between age and impatience in consumer behaviour. See, for example, Bishai, D. (2004). «Does Time Preference Change with Age?». Journal of Population Economics.
Distribution of spending over the month by generation
(% corresponding to each week)
In conclusion, using high-frequency internal data we have found that consumers do not spread their spending evenly throughout the month but tend to spend more in the first week. Moreover, this behaviour is more pronounced for low-income groups and young people.