Short-Term Financing Usage: A Comparison of the Carolinas to the Broader United States

The Coastal Business Journal The Coastal Business Journal

Volume 20

Number 1

Coastal Business Journal

Article 5

July 2024

Short-Term Financing Usage: A Comparison of the Carolinas to Short-Term Financing Usage: A Comparison of the Carolinas to

the Broader United States the Broader United States

Gary Curnutt

Western Carolina University

, [email protected]

Blain Pearson

Coastal Carolina University

, [email protected]

Follow this and additional works at: https://digitalcommons.coastal.edu/cbj

Recommended Citation Recommended Citation

Curnutt, Gary and Pearson, Blain (2024) "Short-Term Financing Usage: A Comparison of the Carolinas to

the Broader United States,"

The Coastal Business Journal

: Vol. 20: No. 1, Article 5.

Available at: https://digitalcommons.coastal.edu/cbj/vol20/iss1/5

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Short-Term Financing Usage: A Comparison of the Carolinas to the Broader Short-Term Financing Usage: A Comparison of the Carolinas to the Broader

United States United States

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Statements and Declarations The authors declare no competing interests in: Funding, Employment,

Financial, or other non-<nancial interests. The authors did not receive support from any organization for

the submitted work. The authors have no competing interests to declare that are relevant to the content

of this article. In this study we used publicly available, non-identi<able data. No informed consent was

required. The dataset generated during and/or analyzed during the current study are available from the

National Financial Capability Study (NFCS). The NFCS is a project of the Financial Industry Regulatory

Authority (FINRA) Investor Education Foundation. Additional information about the NFCS and the data

collection process can be located on the FINRA Foundation’s website: www.us<nancialcapability.org/

downloads.php. Acknowledgments: The authors thank Gary Mottola of FINRA Investor Foundation for

data assistance.

This article is available in The Coastal Business Journal: https://digitalcommons.coastal.edu/cbj/vol20/iss1/5

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Volume 20

Short-Term Financing Usage: A Comparison of the Carolinas to the Broader United States

Gary Curnutt, Western Carolina University

Blain Pearson, Coastal Carolina University

Abstract

This study uses data from the National Financial Capability Study (NFCS) to examine the

short-term financing usage of North Carolina and South Carolina (NCSC) residents compared to

those in other states. The following short-term financing services are analyzed: Auto title loans,

payday loans, tax refund advances, pawn shops, and rent-to-own stores. The key findings reveal

that NCSC residents, compared to residents of other states, tend to more frequently utilize pawn

shops and rent-to-own stores, and less frequently utilize payday loans. No statistically significant

differences were observed between NCSC residents and residents of other states for the usage of

auto title loans and tax refund advances. Implications for regional financial literacy education

and policy are discussed, including the varying prohibitions and limitations on different forms of

predatory loans.

Keywords: Alternative Financial Services, Financial Services Regulation, Personal Finance,

Predatory Lending, Unbanked

Introduction

Consumer-oriented short-term financing solutions tend to be more detrimental to

financial well-being than other solutions. For instance, subprime short-term financing solutions,

such as auto title loans, payday loans, tax refund advances, pawn shops, and rent-to-own stores,

are associated with higher interest rates and longer repayment periods, both of which increase the

financial burden on consumers of these services. While several factors affect the utilization of

the aforementioned services, more conventional financing solutions are often categorically

eliminated for consumers with zero or poor credit history. These consumers are often referred to

as the “unbanked” or “underbanked” and tend to be younger, non-White, less financially

sophisticated, and have lower incomes (McKernan et al., 2013).

The tendency to utilize subprime short-term financing solutions services is exacerbated

by the cumulative inequalities of generational poverty, demographics, and socioeconomic status,

as these characteristics can position individuals with few alternative options (Lynn et al., 2024;

Stegman, 2007). In this sense, the utilization of non-conventional short-term financing options

has the power to create a cycle that becomes challenging to overcome. Elliehausen & Lawrence

(2001), find that those who have used payday loans are more likely to have filed for bankruptcy

in the last five years and be behind on mortgage payments or consumer debt in the previous year.

The problem can be most acute in situations where borrowers take additional short-term loans to

pay off previous short-term loans. Elliehausen & Lawrence (2001) further find that although an

aggressive debt cycle may be uncommon, about half of payday loan users used two or more

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payday loan companies in the previous year, approximately a third of those borrowers used those

loans to pay off previous payday loans, perpetuating a cycle of expensive debt.

Both North Carolina and South Carolina have made strides to restrict predatory lending

practices. In North Carolina, “Small Loans” are limited to $500 and restrict annual percentage

rates from exceeding 36%. South Carolina has a similar restriction on dollar amounts of Payday

loans, $550, but annual percentage rates can be much higher and, in some cases, reach nearly

400% when annualized. North Carolina has also banned the practice of title loans. However, in

what effectively becomes a game of regulatory whack-a-mole, restricting or outlawing one short-

term financing market positions consumers to seek other short-term financing markets for

solutions, some of which may have characteristics with worse consequences for financial well-

being.

Financial literacy could also be a driving factor in adopting these practices. Financial

illiteracy is a growing issue in the United States. A Standards and Poor’s (2014) report found that

about 57% of adults in the U.S. are considered financially literate. Although, many state and

federal financial literacy programs have found traction since 2014. Since 2021, high school

students in North Carolina have been required to take a personal finance class before graduating.

South Carolina enacted a similar legislation in 2022 that is anticipated to take effect in 2023.

However useful these programs may prove in the long term, financial illiteracy continues to be

an issue in the short term.

The aim of this paper is to provide a comparison of North Carolina and South Carolina

(NCSC) to the remainder of the United States. Specifically, the aim is to explore if NCSC

residents utilize predatory lending practices more or less frequently than other states. The paper

concludes with implications for regional financial literacy education and policy.

Literature Review

Short-term lending practices have been under strict scrutiny due to their predatory nature

and potential ability to trap borrowers into a cycle of debt. These services are commonly referred

to as Alternative Financial Services (AFSs). Several studies find that access to these AFSs could

be detrimental to financial well-being if individuals have lower levels of financial literacy or

have lower intertemporal time preference for income consumption (Johnson et al., 2001;

Korankye & Pearson, 2023; Liu et al., 2023; Lusardi & Tufano, 2008; O’Donoghue and Rabin,

2007; Stango and Zinman, 2011). To examine the tendency of NCSC residents to use AFSs,

compared to non-NCSC residents, we use five common types of alternative short-term financing

options in our analysis: auto title loans, payday loans, tax refund advances, pawn shops, and rent-

to-own stores.

Both payday and auto title loans are sub-prime loans, although they have unique

characteristics that justify their utilization. Payday loans allow consumers to borrow against their

future income, while a title loan allows consumers to utilize their existing wealth, commonly an

owned vehicle, to leverage current cashflows (Zywicki, 2010). Payday loan amounts average

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between $400 and $500, while title loan amounts average closer to $1,000 (Anderson & Jackson,

2021). In North Carolina payday loans are prohibited, however, “Small Loans” are permitted up

to $500 at a maximum rate of 36%. South Carolina permits payday loans, and limits them to no

more than $550, and limits the annual percentage rate (APR) to 391%. Given that the average

payday loan is between $400 - $500, the smaller dollar amount restrictions could be one reason

why these financing solutions are permitted, even when considering their large financing costs.

The comparably lower interest rate on smaller loans in North Carolina, and the language banning

payday loans, may discourage providers of these services. Previous research finds that

prohibiting payday loans is associated with a 32% decline in the use of this form of borrowing

(McKernan et al., 2013).

For larger loans, such as title loans, the ability to borrow more than the limits of a small

cap or payday loan could have its advantages during a financial emergency. Research shows

access to sub-prime loans mitigates foreclosures in low-income areas (Morse, 2011; Pearson &

Lacombe, 2021). Although North Carolina prohibits title loans, South Carolina permits such

loans. In South Carolina, title loans can charge high-interest rates on loans over $600, but the

loan amount cannot be greater than the fair market value of the vehicle. The typical range of the

loan amount is between $600 and $2,500 (South Carolina Appleseed Legal Justice Center, 2004).

Although title loans are monthly loans, they can be rolled over, resulting in APRs over 300%.

Less studied are AFS, such as tax refund advances, rent-to-own financing, and the use of

pawnshops for short-term financing. The characteristics of this group tend to be different than

the characteristics of those who utilize payday or title loans. Roughly one-third of lower-income

families without a savings account report that they would utilize a payday loan or pawnshop to

pay for a large, unexpected bill (McKernan and Ratcliffe, 2008). Monthly pawnshop loans are

typically much smaller, normally under $100 (National Pawnbrokers Association, 2008). This is

supported by findings that suggest pawnshop and rent-to-own customers tend to have the lowest

incomes among those who use AFSs, and, likewise, these consumers are about 10% less likely to

have a bank account than those who use payday or title loans (McKernan et al., 2013).

Rent-to-own (RTO) is another form of short-term financing. Rent-to-own agreements can

have very high effective annual percentage rates. Traditional RTO options provide immediate

access to household goods without thorough credit checks or down payments. Previous research

indicates that RTOs may be a misnomer, as about 72% of agreements ended in the return of the

property, and averaged a 29% APR (Anderson & Jaggia, 2009).

Tax-refund advances are another means of short-term financing. Tax-refund advances

can take the form of Refund Anticipation Loans (RAL). Rather than consumers waiting several

weeks for their tax refund, a lending institution can loan consumers funds using the tax refund as

collateral. Some RALs can carry interest rates above three digits when annualized. In 2013, 9%

of North Carolinians and 10% of South Carolinians took advantage of some form of RAL

(McKernan et al., 2013).

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In what follows, this study examines the usage of short-term financing services by NCSC

residents compared to those in other states. The following short-term financing services are

analyzed: Auto title loans, payday loans, tax refund advances, pawn shops, and rent-to-own

stores.

Methodology

Data

Data from the National Financial Capability Study (NFCS) are utilized. The NFCS is a project of

the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation. Additional

information about the NFCS and the data collection process can be located on the FINRA

Foundation’s website: www.usfinancialcapability.org/downloads.php.

Variables

The dependent variables of interest include the frequency of using short-term financing services.

Survey participants are asked, “In the past 5 years, how many times have you used the following

services”: Auto title loans, payday loans, tax refund advances, pawn shops, and rent-to-own

stores. For each service, survey participants can respond 1 (Never), 2 (1 Time), 3 (2 Times), 4 (3

Times), or 5 (4 or More Times). The complete set of questions can be found in the Appendix.

The key explanatory variable is a binary variable, where a “1” is coded if the survey participant

reports their residence in North Carolina or South Carolina (NCSC). The NCSC variable is

coded as a “0” otherwise. Of the full sample (N = 25,836), 956 reported living in either NC or

SC. Other variables examined include whether the survey participant is male, age, whether the

survey participant is white, whether the respondent is married, income, whether the respondent

has a dependent child, and whether the respondent is employed. Survey weights are used.

Analytic Model

Ordered probit regression models are estimated for each of the short-term financing services. All

five of the regression models contained the following independent variables: Male, Age, White,

Married, Income, Dep. Child, and Employed. Male, White, Married, Dep. Child, and Employed

enter the model as binary variables, coded as a “1” if the survey participant is male, White,

married, has a dependent child, and employed, respectively. Age enters the model as a

continuous variable. The income variable enters the model as a categorical variable due to the

data’s categorical nature, where the income of 0 to $35,000 is compared to incomes of $35,000

to $100,000 and $100,000 +. The error terms are assumed to follow the standard normal

distribution.

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Results

Descriptive Statistics

Table 1 provides a frequency distribution of the short-term financing usage among

NCSC residents compared to the non-NCSC residents. Compared to non-NCSC residents, NCSC

residents tend to utilize pawn shops and rent-to-own stores more frequently. The percentages of

the full sample (NCSC residents) who never use these services are as follows: Auto title loans

88.33% (87.17%), payday loans 85.73% (87.49%), tax refund advances 90.05% (88.22%), pawn

shops 80.72% (76.85%), and rent-to-own stores 87.46% (84.67%). The percentages of the full

sample (NCSC residents) who have used these services 4+ times are as follows: Auto title loans

1.11% (1.25%), payday loans 3.10% (1.77%), tax refund advances 1.59% (1.25%), pawn shops

5.03% (6.67%), and rent-to-own stores 1.66% (1.98%).

Table 2 provides the descriptive statistics of the sample. The following percentages

comprise the full sample (NCSC sample): 45.95% (45.98%) Male, 79.24% (74.34%) White,

49.86% (47.45%) Married, 64.09% (65.69%) Dependent Child, and 64.24% (59.12%)

Employed. The following percentages comprise the income distribution of the full sample

(NCSC sample): 32.99% (37.23%) income less than $35,000, 46.25% (45.88%) income between

$35,000 and $100,000, and 20.75% (37.49%) income over $100,000. The average ages are 48.2

(48.69).

Main Results

Table 3 provides the combined average marginal effects of the ordered probit regressions. In

summary, the key findings reveal that NCSC residents, compared to non-NCSC residents, tend to

more frequently utilize pawn shops and rent-to-own stores, and less frequently utilize payday

loans. No statistically significant differences were observed between NCSC residents and

residents of other states for the usage of auto title loans and tax refund advances. The remainder

of this section outlines the results in detail.

Compared to non-NCSC residents, no statistically significant difference is observed with regard

to the use of auto title loans. The following average marginal effects are statistically significant

for the “Never” use category for the use of auto title loans: -0.0367 (p < 0.001) Male, 0.0047 (p <

0.001) Age, 0.026 (p < 0.001) White, -0.0151 (p < 0.01) Married, 0.0164 (p < 0.001) 35k to 100k

income compared to less than 35k income, -0.0863 (p < 0.001) Dependent Child, and -0.0208 (p

< 0.001) Employed. The following average marginal effects are statistically significant for the

“4+ Times” use category for the use of auto title loans: 0.0054 (p < 0.001) Male, -0.0007 (p <

0.001) Age, -0.0038 (p < 0.001) White, 0.0022 (p < 0.01) Married, -0.0024 (p < 0.01) 35k to

100k income compared to less than 35k income, 0.0126 (p < 0.001) Dependent Child, and

0.0031 (p < 0.001) Employed.

Compared to non-NCSC residents, NCSC residents were 2.71% more likely (p < 0.05) to

“Never” use payday loan services and 0.0087% less likely (p < 0.05) to use payday loan services

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4+ times. The following average marginal effects are statistically significant for the “Never” use

category for payday loan services: -0.0329 (p < 0.001) Male, 0.0049 (p < 0.001) Age, 0.0351 (p

< 0.001) White, 0.0166 (p < 0.01) Married, 0.0412 (p < 0.001) 35k to 100k income and 0.0459

(p < 0.001) 100k+ income compared to less than 35k income respectively, -0.0985 (p < 0.001)

Dependent Child, and -0.0178 (p < 0.01) Employed. The following average marginal effects are

statistically significant for the “4+ Times” use category for payday loan services: 0.0105 (p <

0.001) Male, -0.0016 (p < 0.001) Age, -0.0112 (p < 0.001) White, -0.0053 (p < 0.01) Married, -

0.0134 (p < 0.001) 35k to 100k income and -0.0148 (p < 0.001) 100k+ income compared to less

than 35k income respectively, 0.0314 (p < 0.001) Dependent Child, and 0.0057 (p < 0.01)

Employed.

Compared to non-NCSC residents, no statistically significant difference is observed with

regard to the use of tax refund advance services. The following average marginal effects are

statistically significant for the “Never” use category for tax refund advance services: -0.0407 (p

< 0.001) Male, 0.0052 (p < 0.001) Age, 0.0364 (p < 0.001) White, -0.0147 (p < 0.001) Married,

0.0199 (p < 0.001) 35k to 100k income compared to less than 35k income, -0.0880 (p < 0.001)

Dependent Child, and -0.0297 (p < 0.001) Employed. The following average marginal effects are

statistically significant for the “4+ Times” use category for tax refund advance services: 0.0097

(p < 0.001) Male, -0.0012 (p < 0.001) Age, -0.0087 (p < 0.001) White, 0.0035 (p < 0.01)

Married, -0.0047 (p < 0.001) 35k to 100k income compared to less than 35k income, 0.0210 (p <

0.001) Dependent Child, and 0.0071 (p < 0.01) Employed.

Compared to non-NCSC residents, NCSC residents were 2.81% less likely (p < 0.01) to

“Never” use pawn shop services and 0.0109% more likely (p < 0.001) to use pawn shop services

4+ times. The following average marginal effects are statistically significant for the “Never” use

category for pawn shop services: -0.0518 (p < 0.001) Male, 0.0067 (p < 0.001) Age, 0.0221 (p <

0.001) White, 0.0241 (p < 0.001) Married, 0.1068 (p < 0.001) 35k to 100k income and 0.1372 (p

< 0.001) 100k+ income compared to less than 35k income respectively, and 0.0150 (p < 0.001)

Employed. The following average marginal effects are statistically significant for the “4+ Times”

use category for pawn shop services: 0.0200 (p < 0.001) Male, -0.0026 (p < 0.001) Age, -0.0085

(p < 0.001) White, -0.0093 (p < 0.001) Married, -0.0421 (p < 0.001) 35k to 100k income and -

0.0518 (p < 0.001) 100k+ income compared to less than 35k income respectively, and -0.0058 (p

< 0.001) Employed.

Compared to non-NCSC residents, NCSC residents were 2.35% less likely (p < 0.05) to

“Never” use rent-to-own services and 0.0049% more likely (p < 0.05) to use rent-to-own services

4+ times. The following average marginal effects are statistically significant for the “Never” use

category for rent-to-own services: -0.0279 (p < 0.001) Male, 0.0052 (p < 0.001) Age, 0.0222 (p <

0.001) White, -0.0101 (p < 0.05) Married, 0.0471 (p < 0.05) 35k to 100k income and 0.0496 (p <

0.001) 100k+ income compared to less than 35k income respectively, -0.0905 (p < 0.001)

Dependent Child, and -0.0088 (p < 0.01) Employed. The following average marginal effects are

statistically significant for the “4+ Times” use category for rent-to-own services: 0.0058 (p <

0.001) Male, -0.0011 (p < 0.001) Age, -0.0046 (p < 0.001) White, 0.0021 (p < 0.05) Married, -

0.0099 (p < 0.001) 35k to 100k income and -0.0104 (p < 0.001) 100k+ income compared to less

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than 35k income respectively, 0.0187 (p < 0.001) Dependent Child, and 0.0018 (p < 0.01)

Employed.

Discussion and Implications

The results reveal several important findings. NCSC residents were more likely to utilize

both pawnshops and RTO agreements as a means of short-term financing compared to other U.S.

residents. Assuming demand for short-term financing remains constant, regulatorily controls or

supply reduction would shift the adoption rate of these services. Previous research shows price

caps and prohibitions on AFS products are associated with supply reductions (McKernan et al.,

2013). Other regulatory policies regarding AFSs in the Carolinas appear to have an impact on

their utilization. For instance, NCSC residents are more likely to have never used a payday loan

and are less likely to have used them one or more times. The regulation and limits imposed on

payday and title loans in the Carolinas could encourage those in need of short-term financing to

seek alternatives. Our analysis sample of NCSC residents shows that, on average, more NCSC

residents report income under $35,000 than other U.S. residents. Likewise, fewer NCSC

residents report making between $35,000 and $100,000 or more than $100,000 than other U.S.

residents.

It is worth noting that although NCSC residents have a greater probability of making less

than $100,000, purchasing power is generally greater in most NCSC counties compared to other

U.S. counties. 2021-2022 data from the U.S. Bureau of Economic Analysis (2023) shows that in

Berkeley, South Carolina, the county with the lowest purchasing power in NCSC, $100 would

purchase $100.83 worth of goods. On the other hand, in Sumter county, South Carolina, the

county with the highest purchasing power in NCSC, $100 would purchase $115.49 worth of

goods. However, the same data shows real personal income falling by about 3% for both North

and South Carolina from 2021 to 2022. Additionally, in our data, 59% of NCSC residents in our

analysis sample were employed compared to 64% for the full sample. On average, the Carolinas

seem to be more characteristic of customers of pawnshops and RTOs.

Our analysis did not show a statistically significant relationship between NCSC residents

and other U.S. residents in the utilization of title loans. The relatively larger loan amount and

high interest of title loans create a double-edged sword that could exacerbate the debt

consequences in emergency situations. This could be an area of regulatory growth for South

Carolina. South Carolina does impose some restrictions on title loans, but annual rates can

exceed 300%. Previous research shows that imposing a 36% cap on title loans is associated with

a 28% reduction in borrowing (McKernan et al., 2013).

The responsibility should not fall to the consumer alone, and enhancing consumer

protection is a critical step. Policymakers should require AFS providers to more clearly disclose

all terms and conditions associated with the loans, and ensuring borrowers are well-informed

before committing to any financial product. A difference is observed when providing

documentation about a loan and an effort is made to ensure consumers sufficiently understand

the terms and payment conditions of a loan. The literature suggests that consumers of AFS tend

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to be less educated and less financially sophisticated (Pearson & Korankye, 2023).

Consequently, minimal disclosure of interest rates and fees is less of an effective deterrent for

vulnerable consumers. Policymakers should consider establishing and implementing clear

guidelines for responsible lending practices. Mandating comprehensive, easy-to-understand

disclosures about fees, repayment terms, and the total cost of borrowing could empower

consumers, lead to more informed decisions, and help avoid an unmanageable debt cycle.

Identifying and removing barriers that restrict consumers from traditional short-term

markets should be a regulatory priority. Policymakers should encourage the development and

availability of affordable and accessible short-term financing solutions. This could include

fostering community development financial institutions (CDFIs) that provide affordable short-

term loans. Moreover, encouraging or incentivizing credit unions to offer small-dollar loans

targeted toward these consumers, or supporting innovative fintech solutions aimed at low-cost

short-term options, offers a solution with improved standards to those in need of short-term

financing. Expanding and promoting these services, particularly in low-income communities,

could play a role in reducing reliance on high-cost alternatives, while potentially facilitating the

transition back into traditional short-term markets. While the focus of the current study

specifically examines the Carolinas, additional regional analyses may yield more general

regional tendencies.

The findings could also have implications for further policy development and the

promotion of financial literacy in the Carolinas. Many consumers of AFS are financially

unsophisticated, and financial literacy improvements should underscore the pitfalls of their

utilization by consumers. Both of the Carolinas have mandated financial literacy requirements in

their public schools, but this excludes the majority of current consumers of AFS who never had

an opportunity to gain financial literacy or those who did not finish high school. Investing in

comprehensive financial literacy programs is a proactive step to ensuring consumer awareness of

AFS pitfalls. Collaboration between educational institutions, government bodies, and financial

institutions is vital to reach individuals across various age groups and socioeconomic

backgrounds. These programs could complement the financial literacy requirements currently in

place in NCSC public schools, while reaching a non-traditional high school demographic. These

programs have an opportunity to educate consumers on the risks associated with AFS, emphasize

responsible borrowing practices, and promote responsible financial behavior.

Conclusion

Understanding the dynamics of AFS utilization in the Carolinas provides valuable

insights for policy interventions aimed at promoting financial inclusion and protecting vulnerable

consumers from potentially detrimental financial products. This study offers a foundational

understanding of the use of AFS in the Carolinas and by extension, the efficacy of current

regulations aimed at protecting consumers. This analysis helps set the stage for further research

and policy refinement in the realm of alternative financial services in the region.

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Perhaps the biggest shortcoming this study identifies is the lack of regulatory consistency

across NCSC and the U.S. The terms, or even legality, of some loans vary greatly across states.

This limits the efficacy of any one state’s regulatory power to contain predatory alternative short-

term financing options. Collaborative efforts with neighboring states and the federal government

can create consistent regulatory frameworks across regions. Uniform regulations have the

opportunity to prevent circumvention of laws by borrowers crossing state lines, ensuring a level

financial playing field, and a comprehensive approach to consumer protection and financial well-

being.

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Pearson, B., & Lacombe, D. (2021). The relationship between home equity and retirement

satisfaction. Journal of Personal Finance, 20(1), 40-51.

Stegman, M. A. (2007). Payday lending. Journal of Economic Perspectives, 21(1), 169-190.

South Carolina Appleseed Legal Justice Center. (2004). Auto Title Loans and the Law.

Columbia: South Carolina Appleseed Legal Justice Center.

Stango, V., & Zinman, J. (2011). Fuzzy math, disclosure regulation, and market outcomes:

Evidence from truth-in-lending reform. The Review of Financial Studies, 24, 506–534.

U.S. Bureau of Economic Analysis. (2023, May 22). Real personal consumption expenditures by

state and real personal income by state, 2021. U.S. Bureau of Economic Analysis.

https://www.bea.gov/news/2023/real-personal-consumption-expenditures-state-and-real-

personal-income-state-and

Zywicki, T. J. (2010). Money to go. Regulation, 33, 32.

ISSN: 2163-9280 2024

Volume 20

Table 1 – Frequency Distribution of Short-Term Financing Usage of NCSC Residents to

Non-NCSC Residents

Never

1 Time

2 Times

3 Times

4 + Times

Full

Sample

NCSC

Full

Sample

NCSC

Full

Sample

NCSC

Full

Sample

NCSC

Full

Sample

NCSC

Auto

Title

Loan

22,821

(88.33%)

836

(87.17%)

1,493

(5.78%)

(6.78%)

762

(2.95%)

(3.02%)

474

(1.83%)

(1.77%)

288

(1.11%)

(1.25%)

Pay Day

Loan

22,148

(85.73%)

839

(87.49%)

1,269

(4.91%)

(5.11%)

946

(3.66%)

(3.23%)

672

(2.6%)

(2.40%)

801

(3.10%)

(1.77%)

Tax

Refund

Advance

23,266

(90.05%)

846

(88.22%)

940

(3.64%)

(4.80%)

757

(2.93%)

(3.55%)

462

(1.79%)

(2.19%)

411

(1.59%)

(1.25%)

Pawn

Shop

20,854

(80.72%)

737

(76.85%)

1,537

(5.95%)

(7.40%)

1,258

(4.87%)

(5.01%)

887

(3.43%)

(4.07%)

1,300

(5.03%)

(6.67%)

Rent-to-

Own

22,597

(87.46%)

812

(84.67%)

1,378

(5.33%)

(6.67%)

860

(3.33%)

(4.28%)

430

(2.21%)

(2.40%)

430

(1.66%)

(1.98%)

Data from the National Financial Capability Survey

N = 25,836 (n = 956)

ISSN: 2163-9280 2024

Volume 20

Table 2 - Descriptive Statistics of Sample

Total Sample (n = 25,836)

NCSC (n = 959)

Frequency

Std. Dev.

Frequency

Std. Dev.

Male

0.4595

0.4984

0.4598

0.4986

Age

48.2005

17.0110

48.69

17.3178

White

0.7924

0.4056

0.7434

0.4369

Married

0.4986

0.5000

0.4745

0.4996

Income

< 35,000

0.3299

0.4702

0.3723

0.4836

35k to 100k

0.4625

0.4986

0.4588

0.4985

> 100k

0.2075

0.4056

0.1689

0.3749

Dep. Child

0.6409

0.4797

0.6569

0.4948

Employed

0.6424

0.4793

0.5912

0.4919

Data from the National Financial Capability Survey

N = 25,836 (n = 956)

ISSN: 2163-9280 2024

Volume 20

Table 3 – Average Marginal Effects of NCSC Status on Short-Term Financing Usage

Never

1 Time

2 Times

3 Times

4 + Times

Auto Title Loan

NCSC

-0.0123

(0.0095)

0.0049

(0.0038)

0.0032

(0.0025)

0.0023

(0.0018)

0.0018

(0.0014)

Male

-0.0367***

(0.0038)

0.0147***

(0.0015)

0.0096***

(0.001)

0.0070***

(0.0008)

0.0054***

(0.0006)

Age

0.0047***

(0.0001)

-0.0019***

(0.0001)

-0.0012***

(0.0001)

-0.0009***

(0.0000)

-0.0007***

(0.000)

White

0.0260***

(0.0043)

-0.0105***

(0.0018)

-0.0068***

(0.0012)

-0.0050***

(0.0009)

-0.0038***

(0.0007)

Married

-0.0151**

(0.0045)

0.0061**

(0.0018)

0.0039**

(0.0012)

0.0029**

(0.0009)

0.0022**

(0.0007)

Income (<35,000 as base)

35k to 100k

0.0164***

(0.0047)

-0.0066***

(0.0019)

-0.0043***

(0.0012)

-0.0031**

(0.0009)

-0.0024**

(0.0007)

> 100k

0.0031

(0.0062)

-0.0012

(0.0024)

-0.0008

(0.0016)

-0.0006

(0.0012)

-0.0005

(0.0009)

Dep. Child

-0.0863***

(0.0044)

0.0346***

(0.0019)

0.0225***

(0.0013)

0.0165***

(0.0011)

0.0126***

(0.0009)

Employed

-0.0208***

(0.0051)

0.0084***

(0.0020)

0.0054***

(0.0013)

0.0040***

(0.001)

0.0031***

(0.0008)

Pay Day Loan

NCSC

0.0271*

(0.0110)

-0.0070*

(0.0029)

-0.0062*

(0.0025)

-0.0051*

(0.0021)

-0.0087*

(0.0035)

Male

-0.0329***

(0.0041)

0.0085***

(0.0011)

0.0076***

(0.0010)

0.0063***

(0.0008)

0.0105***

(0.0013)

Age

0.0049***

(0.0002)

-0.0013***

(0.0000)

-0.0011***

(0.0000)

-0.0009***

(0.000)

-0.0016***

(0.0001)

ISSN: 2163-9280 2024

Volume 20

White

0.0351***

(0.0046)

-0.0091***

(0.0012)

-0.0081***

(0.0011)

-0.0067***

(0.0009)

-0.0112***

(0.0015)

Married

0.0166***

(0.0048)

-0.0043***

(0.0012)

-0.0038**

(0.0011)

-0.0032**

(0.0009)

-0.0053**

(0.0015)

Income (<35,000 as base)

35k to 100k

0.0412***

(0.0051)

-0.0105***

(0.0013)

-0.0094***

(0.0012)

-0.0079***

(0.0010)

-0.0134***

(0.0017)

> 100k

0.0459***

(0.0065)

-0.0118***

(0.0017)

-0.0105***

(0.0015)

-0.0088***

(0.0013)

-0.0148***

(0.0021)

Dep. Child

-0.0982***

(0.0047)

0.0255***

(0.0013)

0.0226***

(0.0012)

0.0187***

(0.0011)

0.0314***

(0.0017)

Never

1 Time

2 Times

3 Times

4 + Times

Employed

-0.0178**

(0.0053)

0.0046**

(0.0014)

0.0041**

(0.0012)

0.0034**

(0.0010)

0.0057**

(0.0017)

Tax Refund Advance

NCSC

-0.0145

(0.0085)

0.0042

(0.0025)

0.0040

(0.0023)

0.0029

(0.0017)

0.0034

(0.0020)

Male

-0.0407***

(0.0034)

0.0117***

(0.0010)

0.0112***

(0.001)

0.0080***

(0.0008)

0.0097***

(0.0009)

Age

0.0052***

(0.0001)

-0.0015***

(0.0001)

-0.0014***

(0.0001)

-0.000***

(0.0001)

-0.0012***

(0.0001)

White

0.0364***

(0.0038)

-0.0105***

(0.0011)

-0.0100***

(0.0011)

-0.0072***

(0.0008)

-0.0087***

(0.0010)

Married

-0.0147***

(0.0041)

0.0042***

(0.0012)

0.0040***

(0.0011)

0.0029***

(0.0008)

0.0035***

(0.0010)

Income (<35,000 as base)

35k to 100k

0.0199***

(0.0042)

-0.0058***

(0.0012)

-0.0055***

(0.0012)

-0.0039***

(0.0008)

-0.0047***

(0.001)

ISSN: 2163-9280 2024

Volume 20

> 100k

-0.0012

(0.0057)

0.0003

(0.0016)

0.0003

(0.0015)

0.0002

(0.0011)

0.0003

(0.0014)

Dep. Child

-0.0880***

(0.0041)

0.0254***

(0.0013)

0.0242***

(0.0013)

0.0174***

(0.0011)

0.0210***

(0.0013)

Employed

-0.0297***

(0.0048)

0.0086***

(0.0014)

0.0082***

(0.0014)

0.0059***

(0.0010)

0.0071***

(0.0012)

Never

1 Time

2 Times

3 Times

4 + Times

Pawn Shop

NFCS

-0.0281**

(0.0110)

0.0060**

(0.0024)

0.0061**

(0.0024)

0.0051**

(0.0020)

0.0109**

(0.0042)

Male

-0.0518***

(0.0044)

0.0111***

(0.0010)

0.0112***

(0.0010)

0.0094***

(0.0009)

0.0200***

(0.0018)

Age

0.0067***

(0.0002)

-0.0014***

(0.0001)

-0.0014***

(0.0001)

-0.0012***

(0.0001)

-0.0026***

(0.0001)

White

0.0221***

(0.0051)

-0.0047***

(0.0011)

-0.0048***

(0.0011)

-0.0040***

(0.0009)

-0.0085***

(0.0020)

Married

0.0241***

(0.0052)

-0.0052***

(0.0011)

-0.0052***

(0.0011)

-0.0044***

(0.0010)

-0.0093***

(0.0020)

Income (<35,000 as base)

35k to 100k

0.1068***

(0.0058)

-0.0221***

(0.0013)

-0.0229***

(0.0014)

-0.0197***

(0.0012)

-0.0421***

(0.0025)

> 100k

0.1372***

(0.0071)

-0.0299***

(0.0018)

-0.0301***

(0.0018)

-0.0253***

(0.0015)

-0.0518***

(0.0028)

Dep. Child

-0.1102

(0.0049)

0.0237

(0.0012)

0.0238

(0.0012)

0.0201

(0.0011)

0.0426

(0.0021)

Employed

0.0150***

(0.0056)

-0.0032***

(0.0012)

-0.0032***

(0.0012)

-0.0027***

(0.001)

-0.0058***

(0.0022)

Never

1 Time

2 Times

3 Times

4 + Times

Rent-to-Own

NCSC

-0.0235*

(0.0094)

0.0078*

(0.0032)

0.0060*

(0.0024)

0.0048*

(0.0019)

0.0049*

(0.002)

ISSN: 2163-9280 2024

Volume 20

Male

-0.0279***

(0.0039)

0.0093***

(0.0013)

0.0071***

(0.001)

0.0057***

(0.0008)

0.0058***

(0.0008)

Age

0.0052***

(0.0001)

-0.0017***

(0.0001)

-0.0013***

(0.0001)

-0.0011***

(0.000)

-0.0011***

(0.0001)

White

0.0222***

(0.0044)

-0.0074***

(0.0015)

-0.0057***

(0.0011)

-0.0045***

(0.0009)

-0.0046***

(0.0009)

Married

-0.0101*

(0.0045)

0.0034*

(0.0015)

0.0026*

(0.0012)

0.0020*

(0.0009)

0.0021*

(0.0009)

Income (<35,000 as base)

35k to 100k

0.0471***

(0.0049)

-0.0155***

(0.0016)

-0.0121***

(0.0013)

-0.0097***

(0.0011)

-0.0099***

(0.0011)

> 100k

0.0496***

(0.0062)

-0.0163***

(0.0021)

-0.0127***

(0.0016)

-0.0102***

(0.0013)

-0.0104***

(0.0013)

Dep. Child

-0.0905***

(0.0044)

0.0302***

(0.0016)

0.0232***

(0.0013)

0.0184***

(0.0011)

0.0187***

(0.0012)

Employed

-0.0088**

(0.0051)

0.0029**

(0.0017)

0.0023**

(0.0013)

0.0018**

(0.001)

0.0018**

(0.001)

Data from the National Financial Capability Survey

N = 25,836

Significance is defined as follows: * significant at p < 0.05; ** significant at p < 0.01; ***

significant at p < 0.001

ISSN: 2163-9280 2024

Volume 20

APPENDIX

Variable

Question

Auto Title

Loan

In the past 5 years, how many times have you… - Taken out an auto title loan? Auto title loans are

loans where a car title is used to borrow money for a short period of time. They are NOT loans used

to purchase an automobile.

Pay Day

Loan

In the past 5 years, how many times have you… - Taken out a short-term 'payday' loan?

Tax Refund

Advance

In the past 5 years, how many times have you… - Gotten an advance on your tax refund? This is

sometimes called a 'refund anticipation check' or 'Rapid Refund' (Not the same as e-filing).

Pawn Shop

In the past 5 years, how many times have you… - Used a pawn shop?

Rent-to-

Own

In the past 5 years, how many times have you… - Used a rent-to-own store?

Data from the National Financial Capability Survey

N = 25,836 (n = 956)

Statements and Declarations

The authors declare no competing interests in: Funding, Employment, Financial, or other

non-financial interests. The authors did not receive support from any organization for the

submitted work. The authors have no competing interests to declare that are relevant to the

content of this article. In this study we used publicly available, non-identifiable data. No

informed consent was required. The dataset generated during and/or analyzed during the current

study are available from the National Financial Capability Study (NFCS). The NFCS is a project

of the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation.

Additional information about the NFCS and the data collection process can be located on the

FINRA Foundation’s website: www.usfinancialcapability.org/downloads.php.

Acknowledgments: The authors thank Gary Mottola of FINRA Investor Foundation for data

assistance.