Walking a Tightrope: Using Financial Diaries to Investigate Day-to-Day Financial Decisions and the Social Safety Net of the Financially Excluded

Abstract

Financially vulnerable, low-income individuals are more likely to experience financial exclusion as they are unable to access financial services that meet their needs. How do they cope with economic instability, and what is the role of social networks in their coping strategies? Using financial diaries, we explore the day-to-day monetary transactions (n = 16,889) of forty-five low-to-moderate income individuals with restricted access to mainstream lending in Glasgow, UK, over a six-month period. Our sample includes users of microcredit and financial advice, as well as nonusers of these services. Findings reveal that informal lending to avoid the pernicious effects of short-term illiquidity was pervasive among these individuals. However, taking informal loans often strains valuable social capital and keeps people from building up a formal credit footprint. Our findings suggest that financially vulnerable populations would benefit from policies that focus on alternative financial mechanisms to help stabilize income-insecure individuals in the short-term.