Frugality Is Hard to Afford

Intertemporal savings strategies, such as bulk buying or accelerating purchase timing to take advantage of a good deal, provide long-term savings in exchange for an increase in immediate spending. Although households with limited financial resources stand to benefit the most from these strategies, they are less likely to make use of them. The authors provide causal evidence that liquidity constraints impede low-income households’ ability to use these strategies, above and beyond the impact of other constraints. Exploiting recurring variation in household liquidity, this study shows that when low-income households have more liquidity, they partially catch up to higher-income households’ ability to use intertemporal savings strategies. The findings provide guidance to marketing managers and researchers regarding targeted promotional design and measurement of deal-proneness. For policy makers, they suggest a new path for decreasing the higher prices low-income households have been documented to pay for everyday goods. Policies have traditionally focused on increasing financial literacy or access to supermarkets. Our work suggests that providing greater liquidity can help low-income households make better use of savings opportunities already available to them.