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Using geographic differences in the availability of payday loans, I estimate the real effects of credit access among low-income households. Payday loans are small, high interest rate loans that constitute the marginal source of credit for many high risk borrowers. I find no evidence that payday loans alleviate economic hardship. To the contrary, loan access leads to increased difficulty paying mortgage, rent and utilities bills. The empirical design isolates variation in loan access that is uninfluenced by lenders' location decisions and state regulatory decisions, two factors that might otherwise correlate with economic hardship measures. Further analysis of differences in loan availability—over time and across income groups—rules out a number of alternative explanations for the estimated effects. Counter to the view that improving credit access facilitates important expenditures, the results suggest that for some low-income households the debt service burden imposed by borrowing inhibits their ability to pay important bills.

Homeowners at risk of default face a debt overhang that reduces their incentive to invest in their property: in expectation, some value created by investments in the property will go to the lender. This agency conflict affects housing investments. Homeowners at risk of default cut back substantially on home improvements and mortgage principal payments, even when they appear financially unconstrained. Meanwhile, they do not reduce spending on assets that they may retain in default, including home appliances, furniture, and vehicles. These findings highlight an important financial friction that has stifled housing investment since the Great Recession.

Low-income households with proximate access to payday loans exhibit greater economic distress, higher take-up of food assistance benefits, and greater delinquency on child support payments than peers without proximate loan access. These findings suggest that borrowing can exacerbate distress, leading borrowers to use transfer programs and to prioritize payday loan payments over other liabilities like child support. In that way, payday lending produces negative externalities—costs imposed on taxpayers that fund transfer programs and nonresident family members that fail to receive child support.

We investigate a novel determinant of financial distress, namely, individuals' self-efficacy, or belief that their actions can influence the future. Individuals with high self-efficacy are more likely to take precautions that mitigate adverse financial shocks. They are subsequently less likely to default on their debt and bill payments, especially after experiencing negative shocks such as job loss or illness. Thus, noncognitive abilities are an important determinant of financial fragility and subjective expectations are an important factor in household financial decisions.

A common view of retail finance is that conflicts of interest contribute to the high cost of advice. Within a large sample of Canadian financial advisors and their clients, however, we show that advisors typically invest personally just as they advise their clients. Advisors trade frequently, chase returns, prefer expensive and actively managed funds, and underdiversify. Advisors' net returns of -3% per year are similar to their clients' net returns. Advisors do not strategically hold expensive portfolios only to convince clients to do the same; they continue to do so after they leave the industry.

This paper studies the impact of unemployment insurance (UI) on the housing market. Exploiting heterogeneity in UI generosity across US states and over time, we find that UI helps the unemployed avoid mortgage default. We estimate that UI expansions during the Great Recession prevented more than 1.3 million foreclosures and insulated home values from labor market shocks. The results suggest that policies that make mortgages more affordable can reduce foreclosures even when borrowers are severely underwater. An optimal UI policy during housing downturns would weigh, among other benefits and costs, the deadweight losses avoided from preventing mortgage defaults.

Using unique data on Canadian households, we show that financial advisors exert substantial influence over their clients' asset allocation, but provide limited customization. Advisor fixed effects explain considerably more variation in portfolio risk and home bias than a broad set of investor attributes that includes risk tolerance, age, investment horizon, and financial sophistication. Advisor effects remain important even when controlling flexibly for unobserved heterogeneity through investor fixed effects. An advisor's own asset allocation strongly predicts the allocations chosen on clients' behalf. This one-size-fits-all advice does not come cheap: advised portfolios cost 2.5% per year, or 1.5% more than life cycle funds.

This paper evaluates the Car Allowance Rebate System (CARS) by comparing the vehicle purchases and disposals of households with eligible “clunkers” to those of households with similar but ineligible vehicles. CARS caused roughly 500,000 purchases during the program period. The provision of liquidity, through a rebate usable as a down payment, was critical in generating this large response. Participation was rare among households that owned clunkers with outstanding loans, which required loan repayment. This decline in participation is attributed to households’ preference for lower down payments and distinguished from the effects of income, other indebtedness, and the program subsidy.

When the zero lower bound on nominal interest rate binds, monetary policy makers may lack traditional tools to stimulate aggregate demand. We investigate whether “unconventional” fiscal policy, in the form of preannounced consumption tax changes, has the potential to meaningfully shift durables purchases intertemporally and how it is affected by consumer credit. In particular, we test whether car sales react in anticipation of future sales tax changes, leveraging 57 preannounced changes in state sales tax rates from 1999 to 2017. We find evidence for substantial tax elasticities, with car sales rising by more than 8% in the month before a 1% increase in the sales tax rate. Responses are heterogeneous across households and sensitive to supply of credit. Consumers with high credit risk scores are most able to pull purchases forward. At the same time, other effects such as customer composition and attention lead to even greater tax elasticity during recessions, despite these credit frictions. We discuss policy implications and the likely magnitudes of tax changes necessary for any substantive long-term responses.

This study investigates the impact of payday loans, a form of short-term consumer credit that has experienced rapid growth in the last decade. In the first essay, I assess the effect of credit access on economic hardship among low-income households by exploiting variation in the availability of payday loans. The central hypothesis tested is whether improving access to payday loans alleviates hardship, as one would expect if payday loans facilitate the smoothing of expenditures around periods of income or consumption shocks. In the second essay, I examine the impact of payday loan availability on the provision and pricing of alternative forms of short-term credit at depository institutions. This essay seeks to answer two questions that are of interest from an industrial organization and a public policy perspective. First, does introduction of payday lending as an option relative to checking account overdraft and bounced check transactions result in increased or decreased prices for these alternatives? Second, do depositories expand their short-term credit offerings to fill the void after payday lending is prohibited? I find no evidence that payday loans alleviate hardship. On the contrary, the results indicate that loan access leads to increased incidence of difficulty paying mortgage, rent and utilities bills; moving out of one's home due to financial troubles; and delaying needed medical care, dental care and prescription drug purchases. I also find strong evidence that bounced check prices are higher when payday loans are available, as well as weak support for the conclusion that overdraft fees rise when loans become available. Finally, the results indicate that depositories expand their short-term credit offerings by initiating overdraft lending in response to payday loan prohibitions.