We study how households choose between three mortgage contracts with different payment structures: fixed-rate fixed-payment, variable-rate variable-payment, and a hybrid variable-rate fixed-payment. Each payment structure offers a different form of household risk management that interacts with the mortgage contract length. Both aggregate state variables, such as the level of interest rates, and individual state variables, such as leverage and cash-on-hand, drive heterogeneity in mortgage type choice. We show that household welfare is substantially improved when all three contracts are available. Our model matches mortgage choice patterns in Canada, where all three contracts are available with short terms. We demonstrate that restricting contract choice or mandating long terms, as in the U.S. system, can lead to substantial welfare losses by limiting risk management strategies and increasing mortgage pricing ex-ante.

We study the effect of a shift from cash to card payments on household consumption. We exploit 275 explosive attacks on automated teller machines (ATMs) in Germany, which provide plausibly exogenous variation in the availability of cash. Using retail scanner data, we find that households increase their consumption by 2.3% after an ATM in their vicinity is attacked. Moreover, the increase in consumption is driven primarily by purchases of more expensive, branded products, and temptation goods, with the effect largely dissipating after 3 months. Payment diaries from survey data show that this increase is accompanied by a 17.3 percentage point rise in card payments, equivalent to a 77% relative increase from the pre-treatment level. Overall, the results are consistent with short-term overspending as consumers transition to digital payments.

The rapid rise in student loan balances has raised concerns among economists and policymakers. Using administrative credit bureau data, we find that nearly half of the increase in balances from 2010 to 2020 is due to deferred payments, largely driven by the expansion of income-driven repayment (IDR) plans, which link payments to income. These plans help borrowers by smoothing consumption, insuring against labor income risk, and reducing the present value of future payments. We build a life-cycle model to quantify the welfare gains from this payment deferment and the channels through which borrower welfare increases. New, more generous IDR rules increase this transfers from taxpayers to borrowers without yielding net welfare gains. By lowering the average marginal cost of undergraduate debt to less than 50 cents per dollar, these rules may also incentivize excessive borrowing. We demonstrate that an optimally calibrated IDR plan can achieve similar welfare gains for borrowers at a much lower cost to taxpayers, and without encouraging additional borrowing, primarily through maturity extension.