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

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

We thank the editor, Robert DeYoung, an anonymous referee, Todd Gormley, Mark Jenkins, Paul Landefeld, Donald Morgan, Nick Roussanov, Luke Taylor, and Jeremy Tobacman for helpful commentary, 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 within the Division for the Consumer Expenditure Survey during the Bureau of Labor Statistics for help 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 supplied ample monetary help for the project before the writer’s work utilizing the Federal Reserve.The analysis and conclusions expressed in this paper are the ones regarding the author and never fundamentally mirror the views for the Board of Governors of this Federal Reserve System, its people, or its staff. This research had been carried out with limited use of Bureau of Labor Statistics (BLS) information. The views right here try not to fundamentally mirror the views for the BLS.


In this paper, I 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 overall investing and nondurable goods investing generally speaking. The outcome are especially concentrated among households with an increased tendency to utilize payday credit or that have actually restricted alternatives: low income households, households with significantly less than 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 use of other styles of credit.

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