The necessity of small loans: the borrowing and lending among low-income earners in early 20th century Sweden

Abstract

ABSTRACT It is difficult for households to match a low and fluctuating income with their expenditures. One short-term strategy for managing cash-flow problems is to turn to one’s social networks for support. This article describes and analyses the borrowing and lending of small loans (corresponding to one-two days of pay) among low-income earners and the role these loans had in the household economy. By analysing the detailed weekly reports in the Swedish cost of living survey 1913/14, it is possible to explain when and why households borrowed and lent. This was after a period of rising real wages in Sweden, yet surpluses were still small and a public safety net had only begun developing. More than half of the studied 118 workers and 105 lower officials, respectively, borrowed small sums. However, most just borrowed once or a few times over the year. To give a loan was less common than borrowing. Some lenders likely felt obliged to give loans to less well-off borrowers. Other households engaged in reciprocal borrowing and lending of small loans. Small loans were mostly used to handle income shortfalls and not expenditures shocks. Consequently, larger income fluctuations led to more borrowing among workers, unlike the level of household income. Being in a vulnerable position in the life-cycle with young children also increased the risk of borrowing among both workers and lower officials. However, income from adolescents did not seem to have mitigated cash-flow problems as older children increased household borrowing too. Lending declined after the start of WWI. This means that the source underestimates annual lending during peacetime conditions. However, the demand for loans remained largely constant, forcing workers in need to seek out other sources of credit. Still, households’ social networks played an important part in an incessant struggle to make ends meet.