Frugality is Hard to Afford
Working Paper (Revising for invited resubmission at Journal of Marketing Research)
Households commonly use strategies that provide long-term savings for everyday purchases in exchange for an increase in their short-term expenditures. They buy larger packages of nonperishable goods to take advantage of bulk discounts, and accelerate their purchases to take advantage of temporary discounts.
We document that low income households are less likely to utilize these strategies even though they have greater incentives to do so, demonstrate that liquidity constraints are at least partially responsible for this, and quantify the financial losses incurred as a consequence.