Workshop on Human Potential (Brian Melzer, Kellogg School, Northwestern University)

Brian Melzer, Assistant Professor of Finance, Kellogg School of Management, Northwestern University, will present, “Spillovers from Costly Credit: The Effects of Payday Lending on Food Stamp Usage and Child Support Payments.”

This event is co-sponsored with the University of Chicago Urban Network.

***Lunch will be provided by the University of Chicago Urban Network***

Abstract: Recent research on the effects of credit access among low- and moderate-income households finds that high-cost payday loans exacerbate, rather than alleviate, financial distress for a subset of borrowers (Melzer (2011) and Skiba and Tobacman (2011)). In this study I find that others, outside the borrowing household, bear a portion of these costs too: households with payday loan access are 20% more likely to use food assistance benefits and 10% less likely to make child support payments required of non-resident parents. These findings suggest that as borrowers accommodate interest and principal payments on payday loan debt, they prioritize loan payments over other liabilities like child support payments and they turn to transfer programs like food stamps to supplement the household’s resources. To establish this finding, the analysis uses a measure of payday loan access that is robust to the concern that lender location decisions and state policies governing payday lending are endogenous relative to household financial condition. The analysis also confirms that the effect is absent in the mid-1990s, prior to the spread of payday lending, and that the effect grows over time, in parallel with the growth of payday lending.

Bio: Brian Melzer is an assistant professor in the Finance Department at the Kellogg School of Management at Northwestern University. His research interests include household finance, financial institutions and financial regulation. His recent work examines the investment choices of heavily indebted homeowners. He has also studied the effects of payday loans, which are small, short-term consumer loans. Melzer received his PhD in economics from the University of Chicago Graduate School of Business in 2008. Prior to graduate study, he worked as a research analyst in the investment management business.

The Workshop/Working Group on Human Potential is one of the core intellectual activities of the Center for Human Potential and Public Policy. It is an interdisciplinary forum for graduate students, post docs, and faculty whose work concerns behavior, health, and well-being across the lifespan and the ways in which technology and public policy shape human potential and achievement. The Workshop/Working group has active members in the areas of the social, behavioral, health, and policy sciences.

The Workshop/Working Group on Human Potential alternates between two types of sessions. Not only do we regularly invite outside speakers for a traditional "workshop" presentation, but we also provide a forum for faculty, post-doctoral fellows, and graduate students to present research-in-progress in order to receive critical and constructive feedback.