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Online cash advances and Tax Rebates - Online cash advances No Faxing Required ...
There currently exists no definitive study of how online cash advances are used. Researchers from both sides of the aisle (pro and anti-online cash advance interests) are working on it, however. For now, there are studies like “What Do High-Interest Borrowers Do With Their Tax Rebate?” by Marianne Bertrand and Adair Morse of the University of Chicago. They attempt to make sense of the correlation between spending and borrowing habits in relation to the 2008 tax rebate checks. What they find is that there is consistent evidence supporting the idea that the average online cash advance user experienced a lessened dependence upon online cash advances because of their tax rebate check. In so doing, I suggest that these average online cash advance customers are not so impulsive and uneducated as reactionary media would have the masses believe, but reacting to a difficult economic climate in a natural way.
Average and “Temptation” Users
Bertrand and Morse identify different online cash advance usage groups, from low to medium use and a smaller high-use group they classify as “temptation” or impulse spenders. While most online cash advance customer groups showed a marked decline in the use of online cash advances following the appearance of their tax rebate check, the temptation group showed no such decline. The size of this group is marginal compared to the majority in the authors’ survey.
While the temptation group tends to be governed by impulse and use online cash advances for non-essential things like large entertainment purchases and vacations, it is significant to note that online cash advance users as a whole in the survey did not tend to use their tax rebate check to pay down or “retire” their online cash advance debt (only nine percent said they did). They did tend to answer that they were using online cash advances to help with regular monthly bills.
Low-to-middle frequency online cash advance users (the bulk of those surveyed), are more likely to use online cash advances as an infrequent bridge between paydays, absorbing surprise budget gaps. A related study by Shapiro and Slemrod that the authors cite (”Consumer Response to Tax Rebates,” 2003) indicates that this group tends to depend upon credit when their budget is unable to handle financial shocks.
Details of the Study Sample
Here’s how Bertrand and Morse’s study worked. For two weeks they distributed surveys at 70 different online cash advance outlets. As added incentive to participate, customers were offered a free one year magazine subscription. In total, the final survey sample included 881 people. Contrary to media rhetoric that the online cash advance industry preys on the elderly, the median age of the respondent was 42, and their monthly income averaged $2,257 (around $27,000 annually, which is neither rich nor destitute poverty). Only five percent lacked a high school diploma, while a telling 15 percent lacked a college degree. Thus, the average online cash advance customer is educated, which also runs counter to the popular media image of simple people being manipulated by payday lenders for their life savings or something equally ridiculous.
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