While tradition dictates that most people receive their pay on a monthly basis, this isn’t the case for everyone. Indeed, a growing number of employers, especially in food and hospitality, are providing on-demand pay that is paid on a daily basis.

Research from Wharton examines how changes in the frequency of our pay affect how we feel and behave. The researchers found that when we’re paid more often, we also tend to spend more because we think we have more money than we actually do.

“When you get paid every day, you have less uncertainty about whether or not you’re going to make it through the month because you feel like, “I’m going to get money tomorrow,'” the researchers explain. “You end up spending more on things you don’t necessarily need. You’re more likely to eat out or buy nondiscretionary items.”

Spending habits

The researchers analyzed the spending habits of around 30,000 consumers via data gleaned from their financial service providers. They also conducted various simulations in the lab to augment this data. Throughout, the researchers found a clear link between higher pay frequency and higher spending, with this link stronger among lower-paid workers.

“If we take somebody who gets paid once a month and give them their pay every weekday, our data would suggest that they would end up spending over $250 more throughout the year, which is more than double what the average American spends on books, newspapers, and magazines combined,” the researchers explain. “This has real dollars behind it, and it may have real consequences for consumers’ financial well-being.”

That’s not to say that on-demand pay is always a bad thing, and the researchers point out that it can help people with real liquidity challenges. The general irrationality of humans can result in less than optimum patterns of spending, however. In reality, our emotions can play a crucial role in how we spend, so interventions might be required to help us make more judicious choices with our money. For instance, access to our funds might be limited to a few times per month.

“No one wants to spend their entire day thinking about their finances. We have better things to do,” the authors conclude. “So, the more that we can create interventions where people don’t have to actively think about their financial situation and just put it on auto-play, I think the better a society we will be.”