Financial Literacy and High-Cost Borrowing in the United States
Open accessAbstract
In this paper, we examine high-cost methods of borrowing in the United States, such as payday loans, pawn shops, auto title loans, refund anticipation loans, and rent-to-own shops, and offer a portrait of borrowers who use these methods.Considering a representative sample of more than 26,000 respondents, we find that about one in four Americans has used one of these methods in the past five years.Moreover, many young adults engage in high-cost borrowing: 34 percent of young respondents (aged 18-34) and 43 percent of young respondents with a high school degree have used one of these methods.Using well-tested questions to measure financial literacy, we document that most high-cost borrowers display very low levels of financial literacy, i.e., they lack numeracy and do not possess knowledge of basic financial concepts.Most importantly, we find that those who are more financially literate are much less likely to have engaged in high-cost borrowing.Our empirical work shows that it is not only the shocks inflicted by the financial crisis or the structure of the financial system but that the level of financial literacy also plays a role in explaining why so many individuals have made use of high-cost borrowing methods.
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In the U.S., low literate individuals are substantially exposed to high-cost methods of borrowing, including payday loans, pawn shops and auto title insurance.
“Lusardi and de Bassa Scheresberg (2013) also examine high-cost borrowing in the U.S., including payday loans, pawn shops and auto title insurance.They also confirm that low literate individuals are substantially exposed to high-cost methods of borrowing.”
From Financial literacy, financial advice, and financial behavior (2017) · cites this paper as Lusardi and de Bassa Scheresberg (2013)
The Abstract and Introduction report that people with lower financial literacy are more likely to use high-cost borrowing, including payday loans and pawn shops. The paper names auto title loans, not auto title insurance; that item in the citing sentence is not supported as written. (LLM, conf=0.86)
Experimental — accuracy not yet measuredMore financially literate individuals are more likely to refinance their mortgages when it makes sense to do so.
“Individuals with higher financial literacy levels also are more likely to refinance their mortgages when it makes sense to do so, tend not to borrow against their 401(k) plans, and are less likely to use high-cost borrowing methods, e.g., payday loans, pawn shops, auto title loans, and refund anticipation loans (Lusardi and de Bassa Scheresberg, 2013).”
From Financial literacy and the need for financial education: evidence and implications (2019) · cites this paper as Lusardi and de Bassa Scheresberg, 2013
The Previous research section (page not provided) reports that people with lower income and education—traits strongly related to financial literacy—were less likely to refinance during falling interest rates. It does not report a direct finding that people measured as more financially literate were more likely to refinance when doing so made sense for them. (LLM, conf=0.83)
Experimental — accuracy not yet measuredLow levels of financial literacy are associated with high-cost borrowing and suboptimal mortgage choices.
“Most prominently, there is solid evidence that low levels of financial literacy are associated with high-cost borrowing and suboptimal mortgage choices (e.g., Moore 2003;Lusardi and Tufano 2015;Lusardi and de Bassa Scheresberg 2013;Disney and Gathergood 2013).”
From Financial literacy, financial advice, and financial behavior (2017) · cites this paper as Lusardi and de Bassa Scheresberg 2013
More financially literate individuals are less likely to use high-cost borrowing methods such as payday loans, pawn shops, auto title loans, and refund anticipation loans.
“Individuals with higher financial literacy levels also are more likely to refinance their mortgages when it makes sense to do so, tend not to borrow against their 401(k) plans, and are less likely to use high-cost borrowing methods, e.g., payday loans, pawn shops, auto title loans, and refund anticipation loans (Lusardi and de Bassa Scheresberg, 2013).”
From Financial literacy and the need for financial education: evidence and implications (2019) · cites this paper as Lusardi and de Bassa Scheresberg, 2013
More financially literate individuals tend not to borrow against their 401(k) plans.
“Individuals with higher financial literacy levels also are more likely to refinance their mortgages when it makes sense to do so, tend not to borrow against their 401(k) plans, and are less likely to use high-cost borrowing methods, e.g., payday loans, pawn shops, auto title loans, and refund anticipation loans (Lusardi and de Bassa Scheresberg, 2013).”
From Financial literacy and the need for financial education: evidence and implications (2019) · cites this paper as Lusardi and de Bassa Scheresberg, 2013
The Introduction and Empirical Results link greater financial literacy to less use of high-cost borrowing, but neither addresses borrowing against 401(k) plans. Searches for 401(k) borrowing and retirement-account loans found no passage supporting the specific claim. (LLM, conf=0.72)
Experimental — accuracy not yet measured
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- Authors
- Lusardi, A., & de Bassa Scheresberg, C.
- Affiliations
- National Bureau of Economic Research (US)
- Corresponding author
- Lusardi, Annamaria
- ORCID
- Lusardi, Annamaria
- Venue
- National Bureau of Economic Research
- Publisher
- National Bureau of Economic Research
- Published
- 2013-04
- OpenAlex
- W2154624091
- Cited by
- 250
- References
- 7
- Citations by year
- 2026: 20 · 2025: 19 · 2024: 17 · 2023: 22 · 2022: 26 · 2021: 27 · 2020: 25 · 2019: 20 · 2018: 17 · 2017: 19 · 2016: 14 · 2015: 13 · 2014: 5 · 2013: 6
- Type
- report
- Language
- en
- Open access
- green
- doi.org
- Locations
- National Bureau of Economic Research (publishedVersion)
- SSRN Electronic Journal (acceptedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Funders
- FINRA Investor Education Foundation
- Topics
- Social Sciences › Business, Management and Accounting › Accounting › Financial Literacy, Pension, Retirement Analysis
- Social Sciences › Business, Management and Accounting › Accounting › Financial Literacy and Behavior
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Microfinance and Financial Inclusion
- Keywords
- financial literacy, payday loans, pawnshops, rent-to-own, young adults, financial numeracy, financial knowledge
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