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Finances of low-income Americans reveal where system falls short

By John Masson
May 2, 2012

No Slack: The Financial Lives of Low-Income Americans—a new book by Michigan Law Prof. Michael S. Barr—analyzes the financial choices made by the low- and moderate-income Americans who were among those most battered by the Great Recession.

Drawing on data gathered from low- and moderate-income neighborhoods in Metro Detroit during the subprime lending boom, Prof. Barr, a nonresident senior fellow in economics at the Brookings Institution, analyzes how the financial system has largely failed low-income households. That failure often forces a reliance on payday loans, pawnshops, and paycheck-cashing services to help provide some breathing room in budgets that otherwise would contain no slack. Each of those services, serving customers who don't hold bank accounts, comes at a disproportionately high cost for a population that can ill afford to pay for services most Americans take for granted.

In No Slack, published by Brookings Institution Press, Prof. Barr also recommends policy changes that would help low-income Americans by, among other things, reforming mortgage lending practices and improving consumer protections—both topics he helped the Obama Administration champion during his tenure as assistant secretary of the treasury for financial institutions.

Prof. Barr argues that improving financial education and consumer protection, as well as providing low- and moderate-income Americans access to low-cost, no-frills banking services—which can help prevent dependence on expensive financial services provided by nonfinancial institutions—will improve the lives of millions of Americans who work hard and play by the rules.

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