Credit card and payday loan borrowing: Evidence in the SCF 2010–2019

Tsung-Hsien Li

Economics Letters, 2022, vol. 221, issue C

Abstract: Unsecured borrowing plays an important role for consumers in smoothing consumption. Each year, almost 40% of U.S. households have credit card debts and 4% borrow using a high-cost payday loan. This paper aims to explore the similarities and differences between both types of borrowers. Using the Survey of Consumer Finances (SCF) from 2010 to 2019, I document that: (1) credit card borrowers are middle-aged, upper-middle-class, with some college exposure, and financially literate; (2) payday loan borrowers are young, low-income and low-wealth, less educated, and less financially literate; and (3) payday loan borrowers lack the financial knowledge of inflation and risk diversification, but not of compound interest.

Keywords: Consumer credit; Credit card; Payday loan; Financial literacy (search for similar items in EconPapers)
JEL-codes: D14 G51 G53 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:221:y:2022:i:c:s0165176522003469

DOI: 10.1016/j.econlet.2022.110872

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