Limited and Varying Consumer Attention: Evidence from Shocks to the Salience of Bank Overdraft Fees

Abstract

We explore dynamics of limited attention in the $35 billion market for checking overdrafts, using survey content as shocks to the salience of overdraft fees. Conditional on selection into surveys, individuals who face overdraft-related questions are less likely to incur a fee in the survey month. Taking multiple overdraft surveys builds a "stock" of attention that reduces overdrafts for up to two years. The effects are significant among consumers with lower education and financial literacy. Individuals avoid overdrafts by making fewer low-balance debit transactions and cancelling automatic recurring withdrawals. The results raise new questions about consumer financial protection policy.

ATM Fees at Black and Hispanic Owned Single Market Banks: A Comparative Analysis

“…More broadly, Campbell et al (2010) suggest that depositors may suffer from present biases, cognitive limitations, or financial illiteracy, and that these conditions most often hold among consumers with low levels of education and low incomes. Stango and Zinmann's (2014) study of overdrafts supports a correlation between myopic consumers and low levels of education. However, it is important to note that present biases per se may reflect a rational, high rate of time preference among low income consumers, as suggested by earlier research (Lawrance 1991).…”

Child support wage withholding and father–child contact: parental bargaining and salience effects

“…A different option might be to use a one-time or infrequent intervention with a bigger effect. Stango and Zinman (2014) finding that a one-time survey on overdraft fees reduced bank overdrafts for up to 2 years suggests that sufficiently powerful messages can increase salience in the long term. Child support agencies might be able to use surveys or other tools that prompt fathers to reflect on their interactions with their children to overcome negative salience effects.…”

“…Finkelstein (2009) finds that the short-run price elasticity of driving declines after the introduction of less salient electronic toll collection, and Chetty et al (2009) report that when stores alter tax salience by posting true (tax-inclusive) prices, consumer purchases decreased relative to purchases for goods posted with tax-exclusive prices. Stango and Zinman (2014) find that consumers were less likely to incur bank overdrafts after completing a survey that increased the salience of overdraft fees. In the context of child support, the government's decision to enact wage withholding arguably makes child support payments less salient for nonresident fathers by changing the process from one that requires action to an automatic default.…”

Reducing nonpayment for public utilities: Experimental evidence from South Africa

“…First, the education visit may simply remind a consumer of his outstanding bill. Zwane et al (2011), Karlan et al (forthcoming) and Stango and Zinman (2014) provide evidence on the role of reminders in various contexts. Allcott and Rogers (2014) analyze reminder effects in inducing electricity savings in US conservation campaigns, and Jessoe and Rapson (2014) find that increasing the salience of electricity usage induces households to conserve more energy.…”