High‐Cost Credit and Consumption Smoothing

In this paper, I show that high‐cost credit helps households smooth consumption following periods of temporary financial distress. After experiencing distress—that is, extreme weather events—I find that access to high‐cost payday lending mitigates declines in overall spending and nondurable goods spending generally. The results are particularly concentrated among households with a higher propensity to use payday credit or that have limited...