No Slack; the Financial Lives of Low-Income Americans - Barr (2012).pdf

The financial crisis lay bare how the financial system failed the nation but left hidden the many ways in which that system still fails the most vulnerable Americans. In this volume, Michael S. Barr explores how low- and moderate-income households cope with financial stress, use financial services to make ends meet, and often come up short.

Reporting on the empirical results of an in-depth survey of 1,000 households in metropolitan Detroit, Barr finds that high-cost financial services, barriers to saving, lack of insurance, and credit constraints contribute to poverty and other socioeconomic problems. He describes how households attempt to overcome these barriers, juggle expenses and borrowing every month, and find ways to save. The author shows, for example, how tax refunds for working families can be an important avenue for saving but are often diverted in no small part to pay for expensive refund anticipation loans or check cashing services.

No Slack describes the use of banks as well as alternative financial services providers, such as check cashers, payday lenders, pawnshops, and the like. Particularly salient in light of the nation's housing crisis, the author also explains how many low-income and minority households received high-cost, complicated mortgages.

Barr analyzes how technological innovation, particularly payment cards, can help overcome barriers to financial services for these households. He then explores how insights from behavioral economics can contribute to private sector and governmental initiatives to improve financial services for households and lead to better financial services regulation. The book concludes with a set of policy recommendations to improve consumer protection and financial access as we rebuild our financial system in the years ahead.

Review
"It is so nice to have Michael Barr back in academia, where he has resumed his scholarly research into the challenge of providing affordable financial services for the poor. In this book, he vividly illustrates that while the hidden fees and surprise charges embedded in so many financial products irritate and annoy us, for those with 'no slack' they can have devastating financial consequences. There has got to be a better way, and Barr has devoted his career to finding it." —Sheila Bair, former chair of the Federal Deposit Insurance Corporation



"It is inspiring to see such a thoughtful analysis of the deep financial problems that make life miserable for so many people, and to see that many of these problems can be solved with suitable behaviorally informed financial innovations. Barr faces the real subtlety and complexity of the problems that leave so many people with no slack." —Robert Shiller, Arthur M. Okun Professor of Economics, Yale University



"In many respects the American economy is too financialized. But as Michael Barr highlights in this important book, millions lack access to basic financial services and protections. Barr draws on his unmatched combination of academic expertise and policy experience to define the challenge and suggest ways to meet it. This book deserves to be an important part of any discussion of the future of the financial sector or the prospects for low-income Americans." —Lawrence H. Summers, former U.S. Secretary of the Treasury, president emeritus and the Charles W. Eliot Professor, Harvard University

Review
"It is so nice to have Michael Barr back in academia, where he has resumed his scholarly research into the challenge of providing affordable financial services for the poor. In this book, he vividly illustrates that while the hidden fees and surprise charges embedded in so many financial products irritate and annoy us, for those with 'no slack' they can have devastating financial consequences. There has got to be a better way, and Barr has devoted his career to finding it." —Sheila Bair, former chair of the Federal Deposit Insurance Corporation