Rebate Musings
I’d been skeptical about people’s claims that they were going to save their rebate or pay off debt with it. While that might be true for PF bloggers, I suspect it’s not that true for the general public. Oh sure, it goes in the savings account or off to the credit card company right away, but in the back of your head you’re thinking “it’s a free 600 dollars, I can treat myself to dinner out just this one time”. And eventually you’ve spent a good chunk of it. Everyone who pays down credit cards this month is going to spend them up a bit more next month.
But mostly this was idle speculation and pessimism. Until I read a Freakonomics blog post today. They linked to three studies of the 2001 rebate. The first said basically what you’d expect. Some people planned to spend it (1/4 of respondents) and the rest were going to pay down debt or save. They seem surprised that the richest folks were most likely to spend it, but those are the folks who have their savings and debt all planned out and know they have it to spend.
But the third had the most interesting information. Here’s the recap from the Freakonomics blog:
This paper begins with one particularly compelling observation: credit card companies know our social security numbers (and hence who got their rebates when), and they also know a lot about our spending and saving patterns.
And so once the authors were able to get a large credit card company to share with them (anonymized) data, their research project was made.
Recall that paper #1 had found that nearly half of all respondents expected to use the rebate to pay down their debt. It turns out that this was the initial response of many, but then over the ensuing nine months, spending rose by enough to account for around two-fifths of the average rebate. And for those who were liquidity constrained, spending rose even further.
Yup, they paid it down and then spend at least 2/5 of it later. Actually a lower percentage than I thought, so maybe I’m too pessimistic.