Extreme Weather and Low-Income Household Finance: Evidence from Payday Loans

Shihan Xie, Victoria Wenxin Xie and Xu Zhang

Staff Working Papers from Bank of Canada

Abstract: This paper explores the impact of extreme weather exposures on the financial outcomes of low-income households. Using a novel dataset comprising individual-level payday loan applications and loan-level information, we find that extreme temperature days—both hot and cold—lead to surges in demand for payday loans. An increase in the number of days with extreme heat results in an increase in delinquency and default rates and a reduction of total credit issued, indicating a contraction in loan supply. These effects are especially noticeable for online payday loans. Our findings highlight the heightened financial vulnerability of low-income households to environmental shocks and underscore the need for targeted policies.

Keywords: Climate change; Credit and credit aggregates (search for similar items in EconPapers)
JEL-codes: G5 Q54 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2024-01
New Economics Papers: this item is included in nep-ban, nep-env and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:24-1

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