Working Paper: NBER ID: w26817
Authors: Francesco Dacunto; Thomas Rauter; Christoph K. Scheuch; Michael Weber
Abstract: We study the spending response of first-time borrowers to an overdraft facility and elicit their preferences, beliefs, and motives through a FinTech application. Users increase their spending permanently, lower their savings rate, and reallocate spending from non-discretionary to discretionary goods. Interestingly, liquid users react more than others but do not tap into negative deposits. The credit line acts as a form of insurance. These results are not fully consistent with models of financial constraints, buffer stock models, or present-bias preferences. We label this channel perceived precautionary savings motives: Liquid users behave as if they faced strong precautionary savings motives even though no observables, including elicited preferences and beliefs, suggest they should.
Keywords: precautionary savings; fintech; overdraft facility; household consumption; credit
JEL Codes: D14; E21; E51; G21; G51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| liquid users (L95) | spending reaction (E62) |
| spending behavior (D12) | precautionary savings motives (D14) |
| overdraft availability (G21) | insurance rather than consumption financing (G52) |
| overdraft availability (G21) | spending behavior (D12) |
| overdraft availability (G21) | spending by first-time borrowers (G51) |
| overdraft availability (G21) | spending response to credit (E62) |