This project will explore how the use of payday loans among social security income receivers and supplemental security income receivers affect their financial wellbeing. The main goal is to study 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. The use of high cost payday loans and other alternative financial services has significant long-term ramifications on the financial wellbeing of the OASDI and SSI beneficiaries. This proposal contributes to the literature by seeking answers for the following questions: (a) what are the reasons for payday use among the OASDI and SSI beneficiaries, (b) how payday loan use affect the long-term financial wellbeing of the OASDI and SSI receivers, (c) how payday loan use affect demand for other SSA programs such as TANF. To investigate these questions this proposal will rely on two publicly available data sources: Current Population Survey (CPS) supplements on unbanked and under-banked populations and National Financial Capability Study (NFCS). By using CPS and NFCS samples this project will be able to carry out an extensive study on how financial literacy, across state variations in payday loan regulations, neighborhood characteristics, and density of payday lending storefronts affect the intensity of payday loan use among the OASDI and SSI beneficiaries. Based on the empirical results, this project will make recommendation on how the SSA can reduce the demand for high-cost borrowing and increase financial literacy among the OASDI and SSI receivers.
WI19-09: The Impacts of Payday Loan use on the Financial Wellbeing of the OASDI and SSI beneficiaries