The Liquid Hand-to-Mouth: Evidence from Personal Finance Management Software

Arna Olafsson, Michaela Pagel

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We use a very accurate panel of all individual spending, income, balances, and credit limits from a personal finance software to document spending responses to the arrival of both regular and irregular income. These payday responses are robust and homogeneous for all income and spending categories throughout the income distribution. Moreover, we find that few people hold little or no liquidity. We then analyze whether people hold liquidity cushions to cope with future liquidity constraints. However, we find that peoples’ responses are consistent with standard models without illiquid savings, in which neither present nor future liquidity constraints are frequently binding.
Original languageEnglish
JournalThe Review of Financial Studies
Issue number11
Pages (from-to)4398–4446
Number of pages49
Publication statusPublished - Nov 2018

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