When People Make Their Own Banks
Miguelo Rada doesn't seem like the kind of guy who'd have extra cash. He just spent 32 years in prison, he lives in a halfway house in West Harlem, and his current income comes only from public assistance.
He uses food stamps for food, wears hand-me-down clothes and buys almost nothing. He is also an unofficial bank.
"If somebody asks me, 'Can I borrow $20?' If I have it I'll say, 'Here!' " he says.
This kind of borrowing is one way people do what economists call "consumption smoothing" – basically making spending more regular, even when income is not.
Some people use credit cards or banks to smooth consumption. Others use each other, says Jonathan Morduch, an NYU professor, who studies how ordinary people make ends meet.
"Sometimes we do see people who say, 'I'm getting my money on the 17th, you're getting your money on the 2nd,' and they actually split their checks," he says.
Rada says the people he's lending to often have bad credit, so they can't borrow from banks. His version of a credit check is asking people "What's the problem? Is there a way out?" His ledger, he keeps in his head. And he says he doesn't charge interest.
Rada also accepts deposits for people like his brother, who have a hard time managing their own money. "I say, 'You want me to hold something for you?' So he gave me a hundred, and I held his hundred."
A while later, when his brother came back for the money, "I asked him, 'What's going on? What do you need this for?' " Rada says. "He told me, 'I gotta take care of this bill,' and I went with him."
There are downsides to informal lending. Borrowers don't build up a credit history that allows them to get credit cards and formal loans. And borrowing from friends and family can be a downer.
"When you put family in, then they have the right to critique," says Tamara Bullock, a funeral director in Harlem.
Bullock is part of a bank-like savings club called a sou-sou. In the last one Bullock was in, 13 people promised to pitch in $100 each every two weeks. And every two weeks, one member of the group got $1,300.
Bullock says she loves sou-sous because they force her to save. "There's no 'ifs' and 'buts' because other people are depending on you," she says.
Bullock has been working her way out of deep debt. When she got her most recent $1,300 from the sou-sou, she used it to pay off a debt to a collection agency.
But it isn't always about getting out of debt; a while back, Bullock and her colleague Patricia Hamilton used some of their sou-sou money to go sky diving. Hamilton wants to celebrate her 62nd birthday by taking Bullock sky diving again with her next sou-sou payout. Bullock is trying to get out of it.
For more on Jonathan Morduch's work on how people make ends meet, see the U.S. Financial Diaries Project.