The hidden behavioral tax from a tight budget: Lessons from Dollar store sales

The NYT reports today on the recent growth in super discount retailers like dollar stores. Many consumers who shop at these stores receive some kind of public assistance. The timing of these payments is such that checks are sent out at the beginning of each month. This structure appears to have an impact of shopping behavior.

Some customers at Wal-Mart and the major dollar chains — Dollar General, Family Dollar and Dollar Tree — have such modest budgets that the retailers report upticks in spending at the beginning of the month, when government benefit checks and many paychecks come through. Late in the month, sales drop as even multiroll packs of paper towels are ditched for a single roll.

This shopping behavior comes at a cost. With a tight budget at the end of the month, shoppers have to buy a single roll. Retailers have responded by offering smaller package sizes–micro or single-serve packages–which are cheap in the aggregate, but on a per roll basis, end up being more expensive. Can’t consumers just smooth out their consumption over the month so that they don’t run out of money? This appears to be a task that is easier said than done. Interestingly, some insight on this phenomenon comes from the food stamp program where a similar pattern emerges with respect to food purchases. Researchers have hypothesized that the timing of food stamp benefits may be linked to obesity by contributing to uneven eating patterns. The USDA explains.

The food stamp cycle explanation argues that the practice of distributing food stamps only once a month results in alternate periods of under- and overconsumption, a pattern dubbed the “food stamp cycle,” which may result in weight gain. Households consume food every day but purchase food less regularly—every few days for some households, every few weeks for others. It is possible that food stamp participants run out of food (and benefits with which to purchase more food) near the end of the month. As food becomes scarce and food intake is restricted, a person may lose weight. Then, when food is abundant, the individual may overeat. This distorted pattern of consumption with its periods of binge eating gradually can lead to increased weight

It’s important to note that a causal link between obesity and food stamp timing remains uncertain. Yet, the similarities between the two cases–super discount stores and food stamps–suggests a potential pattern, which the Nudge blog calls the Public Benefit Cycle Tax, that could be a “sticky” behavioral bias policymakers need to take seriously in any potential public assistance reform.

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  • Hansonvanessad

    Perhaps another thing to consider in the food-stamp cycle is the idea that recipients of food stamps have an abundances of “money” for food at the beginning of the month so they allow themselves to splurge on less than healthy food; such as potatoe chips, ice cream, candy, pop, etc. If the total amount the recipient recieves each month was given in 2 or even 4 smaller payments a month, maybe the recipients would make wiser choices about which food items to purchase.