"First phone call is usually family": Informal Borrowing Among Low-Income Debtors

We examine experiences of informal borrowing (from friends and family) among a sample of low-income debtors.

Low-income populations often take on debt to cope with economic insecurity. However, most research on debt focuses on formal market debts (e.g., credit cards) even though research on informal exchanges identifies significant borrowing between family and friends. We ask how low-income debtors navigate these informal credit markets.

We conducted 16 qualitative interviews from a purposive sample of lower-income adult debtors in Wisconsin. Interviews focused on participants' debts and repayment practices. We coded the data in NVivo and used thematic analysis with multiple coders.

We find: (1) borrowers perceived informal borrowing as a superior alternative to borrowing from financial institutions, despite the potential for reputational risks; (2) participants often borrowed to weather a financial shock, make a large purchase, or repay, supplement, or replace existing market debts; (3) participants borrowed from family and friends that had greater economic resources than they did, and who they held in high esteem; and (4) when borrowing, participants worried about straining their personal relationships, reputation, and self-image and engaged in significant relational work that drew on the logic of market exchange in order to maintain those relationships and their own sense of trustworthiness.

We conclude that informal borrowing is an important financial coping strategy that is distinct from, but similar to, informal financial support, and that borrowers draw on a range of relational tools to manage these relationships.