Borrowing in the dark: The role of financial education in payday loan dependence

Authors

Abdullah Mohammad Mahi, St. Mary's University
Solomon Wang, St. Mary's University

Files

Contributor

Dr. Solomon Wang

Digital Publisher

Digital Commons at St. Mary's University

Publication Date

Spring 2025

Keywords

loan; financial instrument; financial literacy; economically marginalized

Description

Payday loans, a form of short-term, high-interest credit, have become a contentious financial instrument in the United States. Though they provide immediate access to cash for individuals, they are largely criticized for reinforcing consumers' financial vulnerability. With APRs consistently surpassing 400%, payday loans not only carry high risk but continue to be widely popular, attracting an estimated 12 million Americans every year. This research delves into the relationship between financial literacy and the utilization of payday loans. The payday lending market thrives by targeting individuals in financial distress, who are typically lowincome, young, and economically marginalized, making them particularly susceptible to exploitative practices like hidden fees, rollovers, and usurious interest rates. This study examines how financial literacy influences reliance on payday loans, using NFCS data to analyze correlations while accounting for income, age, education, and psychological factors. It highlights how payday lenders exploit financially distressed individuals, trapping them in cycles of debt through hidden fees and high-interest rates.

Format

pdf

Size

1 page

City

San Antonio, Texas

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.