Access to Mainstream Financial Services: Does Being Banked Help Smooth Consumption Volatility?
Wise, Andrew S
Since the 1970s, income volatility and consumption volatility have been increasing in magnitude for households across the United States. Traditionally, households smooth up and down swings with savings, credit, or public assistance programs. Low-income households, however, have lower savings and less access to credit and other resources, so financial shocks impose serious constraints on consumption. While access to mainstream financial services is widely lauded for improving financial wellbeing, there is relatively little research on the effects of banking access on financial wellbeing. I intend to address this knowledge gap by analyzing the relationship between banking status and four types of consumption volatility (utilities, food, transportation, and medical) that serve as proxies for financial wellbeing. I hypothesize that unbanked households experience greater consumption volatility than banked households because they have fewer financial resources to withstand financial shocks. The results partially support this hypothesis. Only in the case of utilities consumption volatility does being unbanked correspond with greater consumption volatility. There are many constraints to the data, however, and policy recommendations center on further avenues for research and data collection to more clearly understand if and how banking access can fundamentally help the U.S.’s most financially vulnerable households.
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