“I Don’t Like All Those Fees” Pragmatism About Financial Services Among Low-Income Parents

Abstract

Basic financial services facilitate people’s ability to manage their finances, save, and receive payments from employers or the government. Drawing on survey data as well as qualitative interviews with 80 mothers with limited incomes, we find that parents take a pragmatic view and use a wide range of financial services to meet their needs including fintech, prepaid cards, and mobile phone-based solutions, as well as traditional banks. Mistrust in institutions is an important factor in shaping the services mothers avoid. Structural factors, like employers’ payment methods, also play a role in financial service use. These low-income parents of young children are actively using a range of financial services, much broader than those provided by traditional banks. Many mothers engaged in complex financial management practices to receive income and pay their bills. This opens room for potentially costly errors and is, at least, taxing their cognitive bandwidth. Researchers must attend to the diverse set of financial services with which parents engage and investigate how this affects families’ financial wellbeing and inclusion.

The Link Between Digital Skills and Financial Inclusion—Evidence from Consumers Survey Data from Low-Income Areas

“…Financial exclusion has been found to be concentrated among less wealthy, lower income, unemployed or in informal employment, ethnic minorities or immigrants, and those with lower educational attainment level (Ampudia & Ehrmann, 2017;Barcellos & Zamarro, 2021;Bunyan et al, 2016;Coffinet & Jadeau, 2017;Fernández-Olit et al, 2018). Research also points to the mistrust in financial institutions as a potential determinant of not being banked or using certain financial services (Barcellos & Zamarro, 2021;Collins et al, 2023). Yet, bank account ownership rates in Europe and the US have increased to near universal levels largely due to the shift to electronic payment of welfare benefit payments (Ampudia & Ehrmann, 2017;Anderson et al, 2018;Fitzpatrick, 2015), and the introduction of basic and low cost, limited functionality bank accounts (Fitzpatrick, 2015;Washington, 2006).…”

“…How consumers pay household bills, such as rent, and utility bills, depend on their need for flexibility and transparency. Because low-income households often have limited savings and discretionary income, they value the ability to vary when and how much they pay towards different bills (Collins et al, 2023). For this reason, low-income households are less likely to use automated bill payment methods (Greene & Stavins, 2021).…”

“…For this reason, low-income households are less likely to use automated bill payment methods (Greene & Stavins, 2021). Automated payments also leave the consumer at risk of incurring banking fees for going into their overdraft (Collins et al, 2023). More generally, low-income households are less likely to pay bills online (Greene & Stavins, 2021).…”

“…Firstly, there is little systematic evidence on the use of financial services beyond POS payment methods. Existing research is qualitative (e.g., Collins et al, 2023), focuses on the intention to use banking services (e.g., Karjaluoto et al, 2019), or is conducted in developing countries (e.g., Allen et al, 2016). As one of the few exceptions, Greene and Stavins (2021) examine how American consumers pay household bills, rent or mortgage payments, and POS purchases, but they do not look at the use of financial services in money management (e.g., tracking expenses) more broadly.…”

“If I don't have credit, I don't have anything”: Perspectives on the credit scoring system among mothers with low incomes

“…Rather than focusing on accuracy relative to external data, we rely on what people say about their experiences and how their perceptions influence their behavior. Because alternative financial service use is lower among those with the lowest earnings in the U.S., compared to their counterparts with household incomes between $25,000-50,000 ( Friedline & Kepple, 2017; Lawrence & Elliehausen, 2008; Lusardi & de Bassa Scheresberg, 2013) and because previous research with this sample has similarly found limited engagement with alternative financial services in this sample (Collins et al, 2022), we focus on the mainstream credit market. Finally, using a mix of public survey data and interview findings, we show that people have widespread knowledge of the credit data and scoring system.…”