Financial Services, Savings and Borrowing Among Low- and Moderate-Income Households: Evidence from the Detroit Area Household Financial Services Survey

Abstract

This paper presents new empirical evidence documenting the financial services behavior of low- and moderate-income (LMI) households based on a household survey designed by the author and implemented with the Survey Research Center at the University of Michigan. The Detroit Area Household Financial Services (DAHFS) survey uses a random, stratified sample to explore the full range of financial services used by LMI households, together with systematic measures of household preference parameters, demographic characteristics, and households' balance sheets. Results from over 1,000 interviews in the DAHFS study suggest that the structure of the financial services, credit and payments systems in the formal and informal sectors imposes significant costs on LMI households, including high transaction costs, lessened opportunities to save, higher costs of borrowing, and other difficulties. The paper discusses strategies to help transform the financial services market for LMI households.