Volume 38, Issue 6, December 2009, Pages 966–976
Examining evidence of financial and credit exclusion in Canada from 1999 to 2005 ☆
Abstract
Changes
are occurring in the provision of consumer credit, including the
expansion of subprime and some fringe financial services (e.g., payday
lending). We link two existing literatures on credit constraint and
financial exclusion to assess the impact of these developments on the
financial circumstances of low and modest-income consumers. We develop a
model that identifies observable measures of credit constraint and
financial exclusion and relate them to consumer characteristics and life
cycle behaviour. We estimate this model using the two latest Surveys of
Financial Security for 1999 and 2005, which provide consistent evidence
of credit constraint and financial exclusion through time. We find
modest overlap among our measures of financial exclusion, which include a
zero balance/no account, credit card refusal, and using a pawnshop.
Probit regression is used to investigate the factors influencing the
incidence of financial exclusion. The results are similar for 1999 and
2005 and indicate rising incidence of financial exclusion as income and
wealth fall, although the relationship is nonlinear such that incidence
rises much faster at very low levels of income and wealth. Our analysis
also suggests potentially important links between financial literacy,
formal education, asset building, and financial exclusion and credit
constraint. When we combine the samples, we find statistically
significant evidence of growth in the incidence of each indicator of
financial exclusion when other factors are held constant. Policy
implications may include the strengthening of banking regulations that
affect low-income Canadians and the promotion of universal financial
literacy.
JEL classification
- 7.01 G1 (General financial markets);
- 9.003 I3 (Welfare and poverty)
Keywords
- Financial exclusion;
- Credit constraint;
- Basic banking;
- Unbanked;
- Survey of Financial Security
- ☆
- This paper is a revised version of a paper presented to the Canadian Economics Association Meeting at the University of British Columbia, Vancouver, 7 June 2008.
- Corresponding author. Tel.:
+1 204 953 3859.
Copyright © 2009 Elsevier Inc. All rights reserved.
