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.
AUDIE CORNISH, HOST:
Every day there are families who struggle to make ends meet. On paper, many do earn enough to pay their bills but they fall behind because of timing, like when the rent is due on the 10th and payday isn't until the 15th. There's a research project called U.S. Financial Diaries that's been tracking several hundred of these families. And we're going to hear now about one solution that they found people turning to. Marianne McCune of Planet Money and WNYC reports on informal banking.
MARIANNE MCCUNE, BYLINE: How informal? Meet Miguelo Rada. He just spent 32 years in prison. He lives in a halfway house in West Harlem. He's on public assistance. He's also a banker.
MIGUELO RADA: One time a guy came to me and he said, look, I gotta do something over the weekend. I need $20.
MCCUNE: People ask him for help a lot because Miguelo Rada has a reputation for penny-pinching. The man just took a personal finance course at a local credit union called Neighborhood Trust. To manage his money, he says he just asks himself...
RADA: What do I need for this week? Do I need car fare? No, my metro card is still valid. So I'll put 10 away, and I'll keep 20.
MCCUNE: So if you need to travel to see your mom and you don't have money to get there, in Miguelo Rada's pocket is a tiny bank. He's actually helping people do something economists call consumption smoothing, basically figuring out ways to pay for regular needs even when income is erratic. A lot of people use credit cards or banks.
The people you're lending to, could they borrow from a credit card or a bank?
RADA: Some of their credit is so bad, you know, it would be virtually impossible.
MCCUNE: His version of a credit check?
RADA: I might ask somebody what's the problem? Is there a way out?
MCCUNE: His ledger?
RADA: I keep it up here in my head.
MCCUNE: He doesn't charge interest, and if somebody doesn't come back with his money, he says he doesn't bother them. But there are ramifications.
RADA: If you don't pay, it won't happen again.
MCCUNE: For people who need help saving, here's a more surprising bankish thing Rada does: He accepts deposits, like from his much less frugal brother.
RADA: I say you, yo, you want me to hold something for you? Yeah man, hold this hundred for me.
MCCUNE: The last time his brother came back for it...
RADA: I asked him what's going on? You know, what do you need this for? And he told me I gotta take care of this bill, I gotta do this here. And I went with that.
MCCUNE: And that is the kind of scenario that would make Tamara Bullock feel ill. She never borrows from family.
TAMARA BULLOCK: Because when you put family in, then they have the right to critique.
MCCUNE: Bullock is in her tiny office at a Harlem funeral home. She's a single mom, climbing her way out of a decade of debt. She has a different informal savings strategy. It's called a sou-sou, a savings group. And the last one she was part of is pretty typical: 13 colleagues and friends promised to pitch in $100 every two weeks for a total of 1,300 each time.
Every two weeks, somebody in the group gets the pot. Bullock says she loves sou sous because they force you to save.
BULLOCK: You have to. Like, there's no ifs, ands or buts because other people are depending on you to be accountable.
MCCUNE: Two weeks ago, when her turn came to get the $1,300, she used it to pay a lump sum to a collection agency, which actually saved her money in the long run. She does have a savings account, too. But the sou sou? As someone who loves shopping a little too much...
BULLOCK: I like that I can't access it.
MCCUNE: As for what to do with her next pay-out, in the office next door, 62-year old Patricia Hamilton says she wants to repeat an adventure they had together awhile back.
PATRICIA HAMILTON: She's gonna sky dive again. We're going to go swimming with sharks also. She's gonna sky dive again.
BULLOCK: I'm not sky diving again.
MCCUNE: Informal lending can be a great tool. But Rachel Schneider with the Center for Financial Services Innovation - that's one of the groups behind the Financial Diaries Project - she says there are some down sides.
RACHEL SCHNEIDER: A key issue is that with that form of lending, you don't necessarily build up credit history. And yet, the repayment behavior is just as good as if you had a credit card and your payments got reported to the credit bureau.
MCCUNE: Schneider's group and others are taking note. At least one bank is trying to make people's unofficial good credit with friends and family count on their official credit history. And there's a lot of unofficial good credit out there. Remember that friend of Miguelo Rada's, the guy who borrowed $20 for the weekend? He just needed to get to a job, where he got paid.
RADA: Monday morning he came to me and he says, here, thank you very much. I appreciate it. I needed it. I said no problem, man.
MCCUNE: Come back again. Marianne McCune, NPR News, New York. Transcript provided by NPR, Copyright NPR.