Listen to the UVA Today Radio Show report on this story by Rebecca Arrington:
June 14, 2011 — Many economically at-risk Virginia families rely on high-cost, short-term loans to get by, according to a new study by demographers at the University of Virginia's Weldon Cooper Center for Public Service.
The study, "Undermining Economic Security: Use of Alternative Financial Services in Virginia," examined use of payday lenders, pawnshops and other alternative financial services and found:
• Ten percent of Virginia households report using short-term loan services.
• More than 40 percent of Virginia households that used these services did so to meet basic living expenses. Another 22 percent used these services to meet unexpected financial demands such as lost income, home and car repairs, or medical expenses.
"Use of these short-term loans threatens the long-term economic security of already vulnerable families," said Qian Cai, director of the Cooper Center's Demographics & Workforce group. "Most families are already in or near financial crisis when they turn to these products."
The study, based on data from multiple sources, including the January 2009 Current Population Study and 2010 Census, examined characteristics of those using these services as well as the locations of both mainstream financial lenders (banks and credit unions) and alternative financial services in Virginia.
• Households that use alternative financial services are more likely to have children and more likely to be headed by those who are younger, have lower incomes or less education.
• Black Virginians are more likely than white Virginians to live in a Census tract with no banks or credit unions and only with alternative financial services.
"While alternative financial services may help families address immediate financial crises, the cost of using these products can result in large financial losses or recurring cycles of need," U.Va. demographer and study author Rebecca Tippett said. "These findings build on our previous report on income and asset adequacy in Virginia households, and highlight the need for improved financial literacy and new strategies to help individuals and their families build savings."
The report is in the latest edition of Numbers Count, a data-driven publication that analyzes Virginia demographics and discusses topics of current interest. It is available online.