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No Slack

The Financial Lives of Low-Income Americans

Michael S. Barr

Publication Year: 2012

The financial crisis exposed the potentially unsavory results of the interaction between low- and moderate income households and alternative and mainstream financial institutions. Many households were overleveraged or paid high costs for financial services, while others lacked access to useful financial products that can cushion against economic instability. The financial services system is not well designed to serve low- and moderate-income households, leaving them without financial slack: they did not have adequate breathing room for making the financial adjustments that would permit them to better meet their own needs. No Slack shows us why these families were the least prepared to handle the shock of the deep recession.

This pivotal analysis focuses on the Detroit metropolitan area's low- and moderate-income neighborhoods, which are similar to those of other Rust Belt communities. The Detroit Area Household Financial Services study —conducted at the height of the subprime lending boom —examines these households' decisionmaking processes, behaviors, and attitudes toward a full range of financial transactions.

No Slack reveals widespread problems in home mortgage lending, the common threads among people who file for bankruptcy, the reasons so many households are unbanked, and how behaviorally informed financial regulation can make the market work better. Drawing on his deep policy experience, Michael Barr advocates helping families seek financial stability in three primary ways: enhancing individuals' financial capability, using technology to promote access to financial products and services that meet their needs, and establishing strong protections for consumers.

Published by: Brookings Institution Press

Front Cover, Front Flap

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Title Page, Copyright Page

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pp. i-iv

Table of Contents

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pp. v-vi

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pp. vii-x

...enter of the University of Michigan. Jane Dokko was a true partner in designing the survey. Jane and I were joined in analyzing the data by Benjamin Keys, and most of the chapters in this volume reflect our joint work. I could...

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michael s. barr

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pp. 1-21

...barriers to saving, lack of insurance, and credit constraints increase the economic challenges faced by low-income families. Using a unique data set from a survey I designed and that was administered in...

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Managing Money

michael s. barr

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pp. 22-53

...stratified sample to explore the full range of financial ser- vices used by LMI households, together with systematic measures of household preference parameters, demographic characteristics, and households’ balance...

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And Banking for All?

michael s. barr, jane k. dokko, and benjamin j. keys

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pp. 54-82

...of their monetary cost, suggests that they value these services and would find regulations banning them outright harmful. Policies such as “lifeline” banking have aimed to make traditional bank accounts...

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Preferences for Plastic

michael s. barr, jane k. dokko, and eleanor mcdonnell feit

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pp. 83-114

...nonmonetary features of a payment card, such as the availability of federal consumer protection, are factors LMI consumers weigh most heavily when choosing among differently designed payment cards. We estimate a high take-up rate for a well-designed payment card...

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Which Way to the Bank?

michael s. barr, jane k. dokko, ron borzekowski, and elizabeth k. kiser

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pp. 115-132

...moderate-income neighborhoods, on the other hand, tend to have fewer bank branches and more “fringe banking,” through alternative financial services (AFS) providers such as check cashers, payday lenders...

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Borrowing to Make Ends Meet

michael s. barr, jane k. dokko, and benjamin j. keys

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pp. 133-155

...associated with short-term credit products can be high (Drysdale and Keest 2000).1 Furthermore, some short-term loans, such as payday loans, can be rolled over or extended to provide additional time to pay back...

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High-Cost Home Ownership

michael s. barr, jane k. dokko, and benjamin j. keys

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pp. 156-178

...mortgage pricing: black borrowers and borrowers who use mortgage brokers pay more for mortgage loans than other borrowers, after controlling for a wide vari- ety of factors...

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Living on the Edge of Bankruptcy

michael s. barr and jane k. dokko

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pp. 179-203

...efforts to permit home mortgage principal to be reduced through bankruptcy in the wake of the foreclosure crisis of the last several years, reflects policymakers’ beliefs on the causes of bankruptcy and inspired a spirited dialogue among aca- demics about households’ decisions...

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Expensive Tax Refunds

michael s. barr and jane k. dokko

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pp. 204-217

...even though tax preparation firms have a prominent role in the U.S. tax system. Nationally, more than half of taxpayers use paid preparers to submit their tax returns. Low- and moderate-income (LMI) households are among those...

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Paying to Save

michael s. barr and jane k. dokko

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pp. 218-245

...and is entitled to a tax refund in the amount of the difference. Overwithholding occurs at many income levels and is a common phenomenon among low- and moderate-income (LMI) taxpayers. In 2004 over 20 million LMI taxpayers filed...

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Behaviorally Informed Regulation

michael s. barr, sendhil mullainathan, and eldar shafir

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pp. 246-278

...provides a substantially different perspective on indi- vidual behavior and its policy implications. According to this empirical perspec- tive, behavior is an amalgam of human perceptions, impulses, judgments, and...

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Epilogue: Crisis and Reform

michael s. barr

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pp. 279-286

...economy and restart growth. Although the economy has been stabi- lized and businesses are hiring again, the country is not growing rapidly enough, millions of Americans remain out of work, and we face considerable economic...

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About the Authors

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pp. 287-288

...Michael S. Barr is Professor of Law at the University of Michigan Law School. Barr served as Assistant Secretary of the Treasury for Financial Institutions and was a principal architect of the Dodd-Frank Wall Street Reform and Consumer Protection Act...


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pp. 289-294

Back Flap, Back Cover

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pp. 295-296

E-ISBN-13: 9780815722342
E-ISBN-10: 0815722346

Page Count: 294
Publication Year: 2012