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Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
For Better and for Worse? Effects of Access to High-Cost Consumer Credit
I provide empirical evidence that the effect of high-cost credit access on household material well-being depends on if a household is experiencing temporary financial distress. Using detailed data on household consumption and location, as well as geographic variation in access to high cost payday loans over time, I find that payday credit access improves wellbeing for households in distress by helping them smooth consumption. In periods of temporary financial distress—after extreme weather events like hurricanes and blizzards—I find that payday loan access mitigates declines in spending on food, mortgage payments, and home repairs. In an average period, however, I find that access to payday credit reduces well-being. Loan access reduces spending on nondurable goods overall and reduces housing- and food-related spending particularly. These results highlight the state dependent nature of the effects of high-cost credit as well as the consumption-smoothing role that it plays for households with limited access to other forms of credit.
Cite this item
Christine L. Dobridge, For Better and for Worse? Effects of Access to High-Cost Consumer Credit, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2016-056, Jul 2016.
- D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
Keywords: Household finance ; Consumption ; Consumer credit ; Payday loans
This item with handle RePEc:fip:fedgfe:2016-56
is also listed on EconPapers
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