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Exploring Racial/Ethnic Disparities in the Use of Alternative Financial Services: The Moderating Role of Financial Knowledge

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Abstract

Using the 2015 National Financial Capability Study dataset, this study examined the association between race/ethnicity and the use of alternative financial services (AFS) with the moderating role of financial knowledge. Results showed that blacks were more likely to use payday loans, pawnshops and rent-to-own stores than whites. Further, Hispanics were more likely to use payday loans and pawnshops, while Asians/others were more likely to use  payday loans compared to whites. The level of financial knowledge influenced different types of AFS use among racial/ethnic groups in a different way with a stronger moderating effect of financial knowledge on blacks and Hispanics than for whites. This study supports the important role of financial knowledge, especially for minority groups that need further attention for researchers.

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Notes

  1. We dropped respondents who chose “don’t know” or “prefer not to say” as the answer to AFS questions.

  2. We dropped respondents who chose “prefer not to say” as the answer to the objective financial knowledge questions, and also those who chose “don’t know” or “prefer not to say” as the answer to the subjective financial knowledge question.

  3. Baseline results (i.e., Model 1) are available from the authors upon request.

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Author information

Authors and Affiliations

  1. Department of Consumer Sciences, University of Alabama, 312 Adams Hall, Box 870158, Tuscaloosa, AL, 35487, USA

    Kyoung Tae Kim

  2. Department of Consumer Information Studies, Keimyung University, 1095 Dalgubeol-daero, Daegu, 42601, South Korea

    Jonghee Lee

  3. Department of Family Consumer Science, Minnesota State University, Mankato, 102 Wiecking Center, Mankato, MN, 56001, USA

    Jae Min Lee

Authors
  1. Kyoung Tae Kim
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  2. Jonghee Lee
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  3. Jae Min Lee
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Correspondence to Kyoung Tae Kim.

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Appendix: Descriptive Statistics of Analytic Sample, 2015 NFCS

Appendix: Descriptive Statistics of Analytic Sample, 2015 NFCS

Variables

Percentage

Racial/ethnic status

 Whites

66.9

 Blacks

11.3

 Hispanics

14.6

 Asians/others

7.2

Mean (median) age

46.9 (48.0)

Gender

 Male

49.0

 Female

51.0

Marital status

 Married

53.7

 Single

29.9

 Separated/divorced/widowed

16.5

Presence of a dependent child

36.4

Employment status

 Salaried worker

39.5

 Self-employed

7.1

 Part-time worker

9.5

 Homemaker

8.4

 Student

4.8

 Disabled

4.4

 Unemployed

5.7

 Retired

20.7

Education

 Less than high school

2.3

 High school diploma

25.1

 Some college

31.4

 Associate degree

12.2

 Bachelor’s degree

17.9

 Post-bachelor’s degree

11.2

Household income

 Less than $15,000

11.3

 At least $15,000 but less than $25,000

11.2

 At least $25,000 but less than $35,000

10.8

 At least $35,000 but less than $50,000

15.2

 At least $50,000 but less than $75,000

20.5

 At least $75,000 but less than $100,000

13.1

 At least $100,000 but less than $150,000

12.2

 $150,000 or more

5.7

Homeownership

62.4

Health insurance ownership

89.4

Transitory income shock

22.7

Mean (Median) risk tolerance

5.2 (5.0)

Having an emergency fund

49.6

Bank account ownership

93.6

Current credit record

 Very good

43.4

 Good

19.1

 About average

17.5

 Bad

11.6

 Very bad

8.4

  1. Weighted results

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Kim, K.T., Lee, J. & Lee, J.M. Exploring Racial/Ethnic Disparities in the Use of Alternative Financial Services: The Moderating Role of Financial Knowledge. Race Soc Probl 11, 149–160 (2019). https://doi.org/10.1007/s12552-019-09259-y

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