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Deferred Payment and Spending: What the Evidence Shows

Payment depreciation

John Gourville and Dilip Soman published "Payment Depreciation" in the Journal of Consumer Research in 1998. Their prediction was that a consumer gradually adapts to a historic cost with the passage of time, which decreases its sunk-cost impact on the consumption of a pending benefit. They present evidence of payment depreciation across a range of consumer transactions. The practical implication is that a payment made months ago exerts less influence on today's decision than the same payment made yesterday.

The coupling account

Prelec and Loewenstein's 1998 double-entry mental accounting model supplies the theoretical frame. Their coupling hypothesis holds that the tighter the coupling in time and experience between consumption and payment, the more difficult the payment is experienced and the more conservative the resulting expenditure. Their model also includes prospective accounting: consumption already paid for can be enjoyed as though it were free. Deferred payment structures loosen coupling in exactly this way.

Buy now, pay later

Marco Di Maggio, Emily Williams, and Justin Katz studied BNPL in NBER Working Paper 30508 in 2022. They report that access to BNPL increases both total spending levels and the retail share of total spending, with magnitudes they describe as too large for standard intertemporal and static substitution effects to explain. They also report that spending growth occurred regardless of whether consumers faced liquidity constraints, and describe this as a liquidity flypaper effect, meaning that additional retail credit sticks where it hits rather than being smoothed across periods.

A complication from the meta-analytic evidence

It would be tidy if payment delay were the whole story, but the 2024 Journal of Retailing meta-analysis on the cashless effect reported no evidence that specific features of cashless payment methods, including the ability to delay payment and the transparency of the payment process, significantly moderated spending. Purchase type mattered more. That result does not overturn the BNPL findings, which measure something different, but it does argue against treating payment delay as a single universal explanation.

Why this matters for a budgeting method

Envelope budgeting assumes a fixed pot per category per period. Deferred payment instruments break that assumption by moving the outflow to a later period than the consumption. The research above explains why that separation is behaviorally consequential rather than merely an accounting detail. It does not show that any budgeting method neutralizes the effect; no cited study tested that.

Sources

Every source below was retrieved and checked. Findings are reported as the source states them.

• Payment Depreciation: The Behavioral Effects of Temporally Separating Payments from Consumption — Journal of Consumer Research, 1998
  Predicts and finds evidence that consumers gradually adapt to a historic cost with the passage of time, decreasing its sunk-cost impact on consumption of a pending benefit, across a range of consumer transactions.
• The Red and the Black: Mental Accounting of Savings and Debt — Marketing Science, 1998
  Advances the coupling hypothesis, that tighter coupling in time and experience between consumption and payment makes payment harder to bear and results in more conservative expenditure, plus prospective accounting, in which prepaid consumption can be enjoyed as if free.
• Buy Now, Pay Later Credit: User Characteristics and Effects on Spending Patterns — NBER Working Paper 30508, 2022
  BNPL access increased total spending and the retail share of spending by magnitudes the authors describe as too large for standard intertemporal and static substitution effects to explain, with growth occurring regardless of liquidity constraints, which they term a liquidity flypaper effect.
• Less cash, more splash? A meta-analysis on the cashless effect — Journal of Retailing, 2024
  Found no evidence that specific features of cashless payment methods, such as the ability to delay payment or the transparency of the payment process, significantly moderated spending; purchase type was the stronger moderator.

Common questions

Does buy now, pay later cause people to spend more?

Di Maggio, Williams, and Katz report that BNPL access increases total spending and the retail share of spending, with magnitudes too large for standard substitution effects to explain, and that growth occurred regardless of liquidity constraints. This is a working paper analysis of consumer data; read the claim as their reported finding rather than settled consensus.

Why does an old payment stop mattering?

Gourville and Soman call this payment depreciation: consumers gradually adapt to a historic cost over time, which reduces its sunk-cost impact on the consumption of a pending benefit.

Is payment delay the main reason cards loosen spending?

Not according to the 2024 meta-analysis on the cashless effect, which found no evidence that delay or transparency features significantly moderated spending. Purchase type was the stronger moderator in that analysis.

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