Gender Matters: Economic Behavior of Payday Loan Borrowers

Purpose: Payday loans are small, short-term loans that carry high fees. Economic justice advocates argue that these fees drain individuals and communities of much-needed assets (Coclanis, 2001). While there are over 22,000 payday loan businesses in the U.S. located mostly in low- and middle-income neighborhoods (Bair, 2005), and 5% of the population have used payday loan services at some time (Stegman, 2007), past research has relied on industry-supplied data. In 2009, the first publicly available data set to include questions about payday loans was released from the Survey of Consumer Finances (SCF). Preliminary descriptive analysis shows that payday loan borrowers have less income, assets and wealth than non-borrowers, and are more likely to be single women, people of color, young people, and those with less educational attainment (Logan & Weller, 2009). Despite this, virtually nothing is known about gender differences between borrowers regarding economic decision-making and access to alternative financial resources. This study aims to address this by examining motivations for taking out these high-interest loans and the ability to use informal financial supports. Two questions were analyzed: do male and female borrowers have different reasons for taking out payday loans? Do the two groups rely equally on informal networks in a financial crisis?

Method: The SCF collects financial information on a randomly sampled group of several thousand families in the United States. The researcher analyzed a subset of people within the SCF who indicated having had a payday loan in the past year (n = 375). The independent dichotomous variable was gender (male/female) and each of the dependent variables was categorical: reason for taking out a payday loan (seven reasons) and reliance on family or friends for a financial assistance (yes/no). A chi-square analysis was employed to show possible differences.

Results: There are several distinctly different reasons that women and men cite for taking out payday loans, and there are differences in the ability to rely on informal networks as well. Women are more likely to report using the money to pay other bills or to help out family and friends, and men are more likely to report using the money for emergencies and for convenience (p < 0.00). Female payday loan borrowers are less likely than their male counterparts to rely on friends or family for financial assistance (p = 0.013).

Implications: While women are more likely to use payday loans to help family and friends, they are less likely to get reciprocal help from these informal networks. An understanding of what motivates men and women to utilize payday lending, as well as how informal networks operate as financial safety nets, can inform individual- and community-level social work interventions that address economic vulnerability and improve financial literacy. Furthermore, this study only begins to shed light on this subject, and can spawn further inquiry into the economic behavior of people vulnerable to predatory lending.