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U-M study: you need good money to save money

They say you need to spend money to make money. Well, a new University of Michigan study finds that you also need to have good money to save money. The study found that people with low incomes are less able to buy in bulk and less capable of buying products before they need them in order to take advantage of sale pricing.

The research team, Yesim Orhun and Mike Palazzolo of U-M’s Ross School of Business, used Nielsen data on toilet paper purchases to build their model. According to the university, “the analysis also shows that it’s not simply a lack of knowledge or awareness of sales and bulk discounts that drives the problem. There is also a cash flow issue. When low-income consumers have more liquidity—after getting their paychecks, for example—they do take advantage of bulk discounts and sales.”

“It’s not about poor people making poor decisions—it’s about them facing liquidity constraints, and it matters even for what we’d consider small purchases,” Orhun said. “Clearly, the government can play a role in easing liquidity constraint by making credit more accessible. However, government action isn’t the sole potential source of liquidity relief.”

“Because they have to buy small quantities, they have little inventory at home and can’t wait until a sale presents itself to purchase again, making it even harder to take advantage of sales,” said Orhun.” “It’s a double whammy.”

Photo credit: University of Michigan

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