WI19-09: The Impacts of Payday Loan use on the Financial Wellbeing of the OASDI and SSI beneficiaries

This paper studies the impact of payday loan borrowing on the financial well-being of Social Security (SS) income and Supplemental Security Income (SSI) receivers. Specifically, it focuses on the borrowing behaviors of low-wealth, Old-Age, Survivors, Disability Insurance program (OASDI) and SSI beneficiaries who rely on alternative financial services (AFS), such as payday lending. A significant share of low-income and low-wealth population experience financial hardship and pay excessive fees and interest when they borrow from alternative financial service providers. In 2009 17 percent of households in the U.S. were considered under-banked because they both maintained bank accounts and relied on AFS (FDIC 2009). Using data from the Current Population Survey (CPS) unbanked and under-banked supplements and Survey of Consumer Finances (SCF), this research investigates the following research questions: 1) Are Social Security Administration (SSA) beneficiaries more likely to use payday loans than non-SSA recipients? 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? Our findings suggest that there is little or no demographic variation between SSA beneficiaries and non-SSA beneficiaries who use payday loans. However, being an SSA beneficiary increases the likelihood of receiving payday loans. Lower-income SSA beneficiaries use payday loans more intensively. Borrowing behaviors of lower-income SSA beneficiaries, especially from AFS, are understudied in the literature. This paper attempts to fill this gap.