The Influence of Financial Well‐Being on Pawnshop Use

• Published date: 01 December 2019
• Author: Gianni Nicolini,Brenda J. Cude
• Date: 01 December 2019
• DOI: http://doi.org/10.1111/joca.12244

1674 THE JOURNAL OF CONSUMER AFFAIRS

GIANNI NICOLINI AND BRENDA J. CUDE

The Inuence of Financial Well-Being on Pawnshop Use

This research examined the inuence of nancial well-being on pawn-

shop use. Data from the 2015 National Financial Capability Study

were used to construct a measure of nancial well-being, based on the

Consumer Financial Protection Bureau’s denition. A higher nancial

well-being reduced the odds of pawnshop use by 17%, even after con-

trolling for having a bank account, having a credit card, being nan-

cially overcondent, proximity to local pawnshops, and selected demo-

graphic characteristics. The authors make recommendations for future

research based on changes in the pawnshop industry and its users.

Pawnshops frequently have been described as lenders of last resort, patron-

ized by those who have limited access to other sources of credit. However,

research has suggested that the characteristics of pawnshop users may be

changing, to include those with a relationship with a traditional nancial

institution (Lusardi, Schneider, and Tufano 2011) and thus access to other

sources of credit, as well as nancially knowledgeable consumers (Robb

et al. 2015).

Further, Lusardi et al. (2011) suggested that not only one’s actual

economic resources but also one’s perceptions of his or her economic

well-being might affect condence in ability to nd funds in an emergency,

including use of a pawnshop. To that end, this research examines the

inuence of nancial well-being on pawnshop use, controlling for access to

other credit sources, nancial knowledge, the availability of pawnshops in

one’s local area, and selected socioeconomic characteristics. The denition

of nancial well-being comes from the Consumer Financial Protection

Bureau (CFPB 2017): “a state of being wherein a person can feel secure in

their nancial future and is able to make choices that allow them to enjoy

life” (p. 13). The data are from the 2015 National Financial Capability

Study (NFCS).

Gianni Nicolini (gianni.nicolini@uniroma2.it) is an Associate Professor of Finance in the Depart-

ment of Management and Law,Faculty of Economics at the University of Rome Tor Vergatain Rome,

Italy.Brenda J. Cude (bcude@uga.edu) is a Professor in Family and Consumer Sciences in the Depart-

ment of Financial Planning, Housing and Consumer Economics, College of Family and Consumer

Sciences at the University of Georgia Athens.

The Journal of Consumer Affairs, Winter 2019: 1674–1692

DOI: 10.1111/joca.12244

Copyright 2019 by The American Council on Consumer Interests

WINTER 2019 VOLUME 53, NUMBER 4 1675

REVIEW OF LITERATURE

Research about pawnshops historically has been part of a larger body

of literature focusing on fringe banking or the Alternative Financial Sector

(AFS), which includes payday and title loan lenders, check cashers, tax

preparers who issue refund anticipation loans, and rent-to-own retailers

as well as pawnshops (Fowler, Cover, and Kleit 2014). While some

researchers have found a relationship between the presence of pawnshops

and the presence of payday and title lenders in an area (Canann and

Evans 2015), Hawkins (2011) has argued that pawnshops are different

from other AFS, in part because pawnshop loans are nonrecourse loans.

Hawkins suggested the greatest economic impact of a pawnshop loan is

that consumers cannot use the collateral from the pawned item to obtain a

future loan.

A pawnshop loan typically involves the consumer using an item as

collateral for a loan. The pawnbroker typically loans a fraction of the

pawned item’s value, often reported as around 50% (Hawkins 2011).

If the consumer repays the loan and interest within the predetermined

loan period, the pawnbroker returns the item to the consumer. If not,

the pawnbroker can sell it. Or the consumer may ask for an extension,

effectively taking out another loan on the pawned item (Maslin 2014).

According to the National Pawnbrokers Association (NPA 2018), the

national average pawn loan is $150; 80% repay their loans and redeem

their collateral (“How It Works” 2013). While the NPA describes most

pawnshops (81%) are independently owned businesses, others (Fass and

Francis 2004, for example) have highlighted consolidation in the industry,

with regional or national chains absorbing independent operations. The

NPA characterizes the pawn industry as the “most heavily regulated”

provider of consumer nancial services.

For decades, US scholars have conducted research to describe pawnshop

users. Much of that research was motivated by a concern that pawnshopuse

may be associated with nancial distress, often dened as unmanageable

debt (Hawkins 2011). John Caskey was among the rst, publishing a book

(Caskey 1994) and articles (Caskey 1991; Caskey and Zikmund 1990)

based on interviews with pawnbrokers in ve US states. The pawnbrokers

described their customers as largely those who would nd it difcult

to qualify for a traditional loan from a bank or nance company, along

with some who used pawnshops primarily for convenience. Unlike the

industry’s portrayal, many researchers have characterized pawnshops as

taking advantage of consumers who have no choice but to pawn an item