Paydays, Not Payday Loans: The Impacts of Guaranteed Income on High-Cost Financial Service Usage Among Low-Income Black Women

Background: The role of Guaranteed Income (GI) programs—periodic, fixed cash payments without conditions—in enhancing various outcomes like financial stability and well-being is increasingly acknowledged. Yet, the influence of GI on credit behaviors and financial service access, particularly among minority groups traditionally marginalized in the financial sector, remains underexplored. This gap is critical, considering the compounded racial wealth and credit disparities due to historical financial discrimination and the prevalence of high-cost credit services in economically disadvantaged communities.

This paper delves into the In Her Hands GI experiment in Georgia, where low-income Black women were randomly assigned to receive: (1) $850 monthly for 24 months, (2) a $4300 initial payment followed by $700 monthly, or (3) no payment. We focus on the impact of these GI payments on the use of high-cost financial services like payday loans, pawnshop loans, and others.

Methods: Our longitudinal survey data, capturing responses at 12, 18, and 24 months, provides a rich basis for analysis. With the latest data from 267 treatment and 253 control group members at 12 months, we utilize random assignment to evaluate the GI program's effects. Our primary analysis contrasts the control group with the treatment groups, supplemented by a comparative analysis of the two payment structures.

Results: A year into the program, we observed marked reductions in high-cost financial service usage among participants. Notably, the incidence of payday loan usage dropped from 27.6% in the control group to 15.0% in the treatment group. Similar declines were noted in pawnshop loan usage and other high-cost financial behaviors, albeit with no significant change in auto title loan usage.

Implications: The findings underscore the potential of GI programs to address significant economic barriers for Black families, reducing reliance on predatory financial services and fostering economic mobility. This study contributes valuable insights into the broader impacts of GI on the financial well-being of marginalized groups, offering empirical evidence to inform policy discussions on GI's role in enhancing wealth and credit opportunities for Black households.

This investigation not only adds to the literature on GI's diverse benefits but also provides a nuanced understanding of how such programs can specifically aid Black women in circumventing the financial pitfalls associated with high-cost borrowing, thus paving the way for more informed and equitable policy formulations.