The Negative Association between Alternative Financial Services Usage and Financial Well-Being: Variations by Income

Abstract

Abstract As reliance on alternative financial services (AFS) usage continues its exponential expansion among American families, policy debates over banking regulation perdure with limited empirical understanding of how usage affects individuals’ financial lives. Using data from the 2014 Survey of Household Economics and Decisionmaking, this study explored the association between AFS use and financial well-being using a nationally representative sample (N = 5,896). It also examined the role of household income in AFS use and its relation to financial well-being. Results from regression analyses indicated that AFS use was negatively associated with present financial security measured by credit score, making ends meet, subjective financial well-being, and credit card payment, and that future financial security was measured by having an emergency fund and a rainy-day fund. Moreover, the interaction models showed that lower-income groups had the most negative associations between AFS and most financial well-being indicators, suggesting a substantive role of income in exacerbating the negative relationships. This was the first known study linking use of AFS and household financial well-being with a focus on the role of income. The article concludes with a discussion of implications for policy and social work practice.

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