Financial Advisors, Financial Literacy, Payday Lending, and Bankruptcy

  • Rustin T. Yerkes
  • Selina E. Schirmer
  • J. Howard Finch


As the biblical definition of usury changed and cultural norms associated with incurring personal debt evolved, more financial options developed to meet increased demand. American consumer culture has evolved to promote a liberal use of credit. In particular, sub-prime debt instruments, such as payday lending, have been scrutinized because of excessive borrowing rates. We use state-level macroeconomic data and analyze the effect financial advisors have on payday lending regulation, maximum finance charges, and payday lending usage rates. Our results show payday lending is more heavily regulated, and maximum finance charges and payday lending usage rates are lower in states with a higher per-capita number of financial advisors. These findings suggest financial advisors are an important channel for improving financial literacy in their communities.