Digital Payments and Household Expenditure Composition: Evidence from Food and Prepared-Meal Spending in Indonesia
Using 2022–2023 Indonesian household data and an instrumental variable approach, this study finds that digital payment adoption reduces the share of total expenditure allocated to food while increasing the proportion spent on prepared meals away from home, with effects varying across urban-rural, gender, and age demographics.
Original paper licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). This is an AI-generated explanation of the paper below. It is not written or endorsed by the authors. For technical accuracy, refer to the original paper. Read full disclaimer
Imagine your household budget as a large pizza. For a long time, economists have been studying how digital payments (like using an app on your phone instead of cash) change the size of that pizza. They've found that when people use digital payments, they often end up with a bigger pizza overall—they spend more money.
But this new study asks a different, more interesting question: Does digital payment change how the pizza is sliced?
The researchers in Indonesia wanted to know if switching from cash to digital payments changes what families buy, not just how much they buy. Specifically, they looked at two slices of the budget:
- The Food Slice: How much of the total budget goes to food versus other things (like clothes, transport, or entertainment).
- The "Ready-to-Eat" Slice: Within the food budget, how much is spent on cooking at home versus buying prepared meals (like ordering food or eating out).
Here is what they found, explained simply:
1. The "Food Share" Shrank
The Finding: When households started using digital payments, the percentage of their total budget spent on food went down.
The Analogy: Think of your budget as a backpack. When you carry cash, it feels heavy and real; you can feel the weight of every dollar you spend on groceries. This makes you careful, and food (a basic need) takes up a huge chunk of the backpack.
When you switch to digital payments, it's like the backpack has a "magic weightless" feature. Because the money feels less tangible and you can access funds or credit more easily, you feel like you have more room in the backpack. You start filling that extra space with other things—maybe a new gadget, a bus ticket, or a gym membership. So, while you might still buy the same amount of food, food now takes up a smaller percentage of your total spending because your spending on other things has grown.
2. The "Ready-to-Eat" Slice Grew
The Finding: Within the money people did spend on food, those using digital payments spent a larger share on prepared meals (eating out or delivery) and a smaller share on cooking at home.
The Analogy: Imagine cooking at home is like building a house from scratch. You have to buy the bricks, mix the cement, and lay the foundation. It takes time and effort. Buying a prepared meal is like buying a pre-fabricated wall—it's instant and convenient.
Digital payments act like a "convenience accelerator."
- Less Pain: Paying with cash feels like a physical loss. Paying with a tap or a scan feels like a quick, painless transaction. This makes it easier to say "yes" to the expensive, convenient wall (the prepared meal) rather than doing the hard work of building the house (cooking).
- The Digital Ecosystem: Digital payments are often linked to apps that show you ads, discounts, and delivery options. It's like walking through a supermarket where the shelves are constantly rearranging themselves to show you the most tempting, ready-to-eat snacks right in front of your face. The paper suggests that these digital ecosystems nudge people toward buying prepared food more often.
3. Who Does This Affect Most?
The study found that this "slicing" effect isn't the same for everyone:
- City vs. Country: In cities, where there are many restaurants and delivery services, the shift away from food spending and toward other goods was very clear. In rural areas, the shift toward prepared meals was surprisingly strong, perhaps because digital payments opened up a whole new world of food options that didn't exist before for those families.
- Who's in Charge: The effect was even stronger in households led by women. The researchers suggest this might be because women often manage the daily food budget and time constraints; digital payments might offer them a new way to save time on cooking.
- Age: Older adults (in the 36–50 range) showed a stronger shift toward prepared meals than younger adults, possibly because they have more money to spend on convenience.
The Big Picture
The study concludes that digital payments are not just a new way to hand over money; they are a tool that reshapes how families think about their money.
- The Good News: It helps families diversify. They aren't just surviving on food; they are spending on other parts of life, which can mean a better quality of life.
- The Caution: It might make it easier to spend money on convenience foods that are less healthy or more expensive than home-cooked meals, simply because the "pain" of paying is gone.
In short, digital payments didn't just change the currency of the transaction; they changed the menu of the household.
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