Low-Income Consumers and Payment Choice
Working Paper 2020-3a
February (revised October) 2020
Abstract: Low-income consumers are not only constrained with spending, but also with the type and variety of payment methods available to them. Using a representative sample of the U.S. adult population, this short article analyzes the low possession (adoption) of credit and debit cards among low-income consumers who are also unbanked. Using a random utility model, I simulate the potential consumer welfare gains associated with policy options suggested in the literature to provide unsubsidized or subsidized debit cards, or subsidized prepaid cards to this consumer population. Simulation results show the relative improvement in consumer welfare among all three policy options.
JEL classification: D9, E42
Key words: consumer payment choice, household income, financial inclusion, unbanked consumers, random utility analysis
The author thanks Larry Wall for comments on an earlier draft. The views expressed here are those of the author and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the author's responsibility.
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