2019 RDRC Meeting: The Impacts of Payday Loan Use on the Financial Well-being of OASDI and SSI Beneficiaries

Published: 2019


This project explores whether the use of payday loans among Social Security and Supplemental Security Income recipients affect their financial well-being. Specifically, it studies the borrowing behaviors of low-wealth OASDI and SSI beneficiaries who rely on alternative financial services, such as payday lending, check cashing, rent-to-own, and pawn shops. This research uses multiple public datasets to investigate the following research questions: 1) Are SSA beneficiaries more likely to use payday loans than non-SSA beneficiaries? 2) How does payday loan use vary by income, age, and education among SSA beneficiaries? 3) How does receiving income from SSA affect payday loan use? This study draws information from Current Population Survey (CPS) unbanked and underbanked supplements, Survey of Consumer Finances (SCF), and National Financial Capability Study (NFCS) to control for a richer set of demographic variables and incorporate other relevant demand factors such as why consumers use alternative financial services and how they view AFS versus bank services into the analysis. Additionally, we use information on financial literacy and credit scores to perform robustness checks. Our findings suggest that there is no or little demographic variation between SSA beneficiaries and non-SSA beneficiaries who use payday loans. Being an SSA beneficiary increases the likelihood of receiving payday loans. Compared to higher income SSA beneficiaries, lower-income SSA beneficiaries use payday loans more intensively. Borrowing behaviors of lower-income SSA beneficiaries, especially from alternative financial services, are understudied in the literature. Our study also attempts to fill this gap.

Key Findings