High‐Cost Credit and Consumption Smoothing. This paper had been previously circulated as “For Better and for even worse? Results of Usage Of High‐Cost Credit Rating.”

We thank the editor, Robert DeYoung, an referee that is anonymous Todd Gormley, Mark Jenkins, Paul Landefeld, Donald Morgan, Nick Roussanov, Luke Taylor, and Jeremy Tobacman for helpful remarks, in addition to seminar participants in the Wharton School, the GW/FRB/GFLEC Financial Literacy Seminar plus the Consumer Expenditure Survey Microdata Workshop. I will be grateful to Jimmy Lee, Ryan Pfirrmann‐Powell, Geoffrey Paulin, Arcenis Rojas, as well as others when you look at the Division associated with Consumer Expenditure Survey during the Bureau of Labor Statistics for support accessing the Consumer that is confidential Expenditure files, and I also have always been grateful to Paul Amos associated with Wharton GIS lab for advice about GIS. The Jay H. Baker Retailing Center during the Wharton class offered large support that is financial the task ahead of the writer’s work because of the Federal Reserve.The analysis and conclusions expressed in this paper are the ones associated with writer plus don’t necessarily mirror the views associated with the Board of Governors regarding the Federal Reserve System, its users, or its staff. This research ended up being carried out with limited use of Bureau of Labor Statistics (BLS) information. The views right here usually do not fundamentally mirror the views associated with BLS.

Abstract

In this paper, We reveal that high‐cost credit helps households smooth usage after durations of short-term distress that is financial. After experiencing distress—that is, extreme climate events—I discover that access to high‐cost payday lending mitigates declines in general investing and nondurable products investing generally speaking. The outcomes are especially concentrated among households with an increased tendency to make use of payday credit or that have actually restricted alternatives: low income households, households with not as much as a college level, and households with lower levels of preserving. These results highlight the consumption‐smoothing part that high‐cost credit plays for households with restricted usage of other forms of credit.

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