Digital Payments and Households’ Consumption: A Mental Accounting Interpretation

Abstract

Liming Houa , Shao-Chieh Hsuehb & Shuoxun Zhangc* a School of Economics, Xiamen University, Xiamen, Fujian, Chinab Institute of Economics, School of Economics & Wang Yanan Institute for Studies in Economics (WISE), Xiamen University, Xiamen, Fujian, Chinac Department of Finance, School of Economics & Wang Yanan Institute for Studies in Economics (WISE), Xiamen University, Xiamen, Fujian, ChinaCONTACT Shuoxun Zhang hellenzsx@gmail.com Department of Finance, School of Economics & Wang Yanan Institute for Studies in Economics (WISE), Xiamen University, Xiamen, Fujian, China.ABSTRACTWe explain the stimulating effect of digital payments on households’ consumption using mental accounting theory. With the China Household Finance Survey (CHFS) data in 2017, we empirically identify that households who use digital payments spend 20.63% more than those with alternative payment methods. From the mental accounting perspective, we argue that using digital payments increase consumers’ transaction utility, facilitate intentional adjustment of mental accounts, and result in more unplanned consumption. The stimulating effect is more substantial on long-term consumption and among households with low self-control abilities. Moreover, the integrated financial services provide access to liquidity and help smooth consumption.

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