Credit card as a tool to diminish financial constraints of the low-income population

• Grant number: 22/08436-1
• Support Opportunities: Regular Research Grants
• Start date: November 01, 2022
• End date: October 31, 2024
• Field of knowledge: Applied Social Sciences - Economics - Social Welfare Economics
• Principal Investigator: Farah Diba Mary Anni Abrantes Braga
• Grantee: Farah Diba Mary Anni Abrantes Braga
• Host Institution: Instituto de Ensino e Pesquisa (Insper). São Paulo , SP, Brazil
• Associated researchers: Danny Pimentel Claro
• Associated research grant(s): 23/06106-7 - 2023 AMA Summer Academic Conference, AR.EXT

Abstract

This research examines how low-income consumers use and manage their credit. In virtually every nation, the poor and the wealth gap is growing. With the current pandemic, poverty has risen, with 120 million people being pushed into extreme poverty globally. Such financial constraints have had severe consequences on the well-being of those affected. Most notably, in addition to impacting consumers' lives in the short-term, economic shocks such as the pandemic may transform a small debt into an ongoing financial constraint, making vulnerable individuals such as the low-income population even more susceptible to the nefarious effects of economic shocks. Such consumers are neglected when it comes to the credit market. They are often victims of predatory lenders who charge high-interest rates and have no purpose in helping them other than profit. Yet, credit cards have become an essential part of consumer's life, and the lack of access to credit prevents them from improving their consumption. It might further perpetuate their poor economic condition. Past research on credit card use finds evidence of destructive financial consumer behavior. However, recent research on both literature, credit use, and financial constraints suggests otherwise. These related research areas indicate that having access to credit might reduce the financial constraints of the low-income population if adequately used; thus, credit cards may be a tool to improve the well-being of such consumers. Our goal is to answer" How does credit card use affect low-income consumers' overall well-being? No previous research (to the best of our knowledge) has studied the use of credit cards (actual behavior) by the low-income population. Our data collection consists of two phases: study 1 will analyze the actual credit card behavior of a low-income population; study 2 will investigate causal relationships using online field and laboratory experiments. The findings of this research can be employed to improve programs such as Bolsa do Povo, Emprenda Mulher, and Empreenda Rapido of the Government of Sao Paulo. Policymakers such as Banco Central do Brasil can also use our findings to build specific policies directed to credit offered to the low-income population. Marketing practitioners can prevent wrong credit usage and foster the low-income population's good use of credit. In addition, we contribute to reimagining marketing strategy, moving beyond profit, by ensuring that the vulnerable and women are empowered to make their expressive contributions in marketplaces. (AU)