Firms offering "buy now, pay later" (BNPL) point-of-sale installment loans with minimal underwriting and low interest have captured a growing fraction of the market for short-term unsecured consumer credit. We provide a detailed look into the US BNPL market by constructing a large panel of BNPL users from transaction-level data. We document characteristics of users and usage patterns, and use BNPL roll-out to provide new insights into consumer responses to unsecured credit access. BNPL access increases both total spending levels and the retail share in total spending, with magnitudes too large for standard intertemporal and static substitution effects to explain. These findings hold for consumers with and without inferred liquidity constraints. Our findings are more consistent with a "liquidity flypaper effect" where additional retail liquidity through BNPL "sticks where it hits", than a standard lifecycle model with liquidity constraints.
How do households adjust savings and consumption in response to liquidity from debt relief? I study this question using policy variation induced by federal student loan forbearance in the 2020 CARES Act and an individual-level panel of daily financial transactions for 315,000 borrowers. Borrowers manage liquidity from the payment pause non-optimally, choosing to prepay 0%-interest student debt instead of high-interest obligations. The same borrowers do not make the same mistakes in response to liquidity from direct stimulus payments, and instead correctly prioritize repaying high-interest debt. This behavior suggests a flypaper effect that causes borrowers to treat liquidity from debt relief as non-fungible with liquidity from other windfalls, leading to debt repayment mistakes. Consistent with the predictions of such an effect, borrowers display a marginal propensity to spend (MPX) out of forbearance liquidity that is around half the size of their MPX out of fiscal stimulus. These findings provide evidence against models where consumers treat financial resources as fungible when making debt repayment decisions, with implications for debt relief as a counter-cyclical fiscal policy tool and ongoing debates about the aggregate impacts of student debt forgiveness.
Click here to download a pdf version of my CV (updated September 2022)
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