Food on the Fringe: Food Insecurity and the Use of Payday Loans

Abstract

We examine how payday loan access and use relates to food-related material hardship with a sample of nonelderly households in both the December 2008 and January 2009 Current Population Surveys (CPS). We find that state legislation limiting access to payday loans increases the prevalence of our marginal food security measure by 1.4 percentage points and the probability of reporting that more money is needed for food (food inadequacy) by 2.3 percentage points. Further analyses using state payday loan limits as an instrumental variable suggest that using payday loans helps protect some households from food insecurity, especially those at the cusp of food insecurity. Our findings suggest that many households that are at risk for food insecurity face an unmet need for short-term credit and that improved credit access could reduce food insecurity and improve well-being.