Pawnbroking 101

Who Uses Pawnshops?

Pawn clients are regular people faced with irregular circumstances.

Pawn clients are a diverse mix ranging from the “average joe” to the ultra-wealthy. Anyone can have an unexpected cash-crunch. Pawn shops allow people of all economic positions to address their needs with dignity and privacy. In short: without having to borrow from family, friends, or business partners.

The rise of upscale pawn shops also demonstrates that the affluent face the same challenges that regular people do. Many pawn shops feature Rolex, large diamonds, vehicles, or luxury fashion like Louis Vuitton. The reality show “Beverly Hills Pawn” featured 2 seasons of deals for the ultra-wealthy and celebrities in California.

The following material provides some of the scholarly research done on pawn clientele.

Much of the following information is from the 1998 study “Pawnbroking in the U.S.: A Profile of Customers.” produced by the Credit Research Center at Georgetown School of Business, Georgetown University. The study analyzed current and former pawn clients as well as regional shoppers as a control group. The initial data answered two key questions: who uses pawnshops and why?

“The pawnshop sample was much younger than the general population . . . The vast majority of respondents (78.4 percent) were under 45 years of age, an age group that typically faces expensive family formation/child rearing demands. They were going to pawnshops not only for loans but also to shop.”, P37

“Pawnshops borrowers, who have ranged from princes to peons, have one common characteristic. They do not have financial savings to meet what they regard as pressing, short-term liquidity needs.”, P29

The results provide key information to understanding the value pawn shops offer to the public. Pawn clients do not have enough financial liquidity to address unexpected expenses. Just as importantly: they are young adults facing costs related to living independently, family growth, housing, and building their place in the world. They are also typically employed, falling within 2.1% of baseline employment rates. They work and contribute to the community.

However, one of the key differences involves employment history. Compared to the “shop only” control group pawn clients have dramatically higher rates of work transition or instability. For example:

  • 1.97X higher rates of lay off
  • 2.6X higher rates of termination
  • 1.44X higher rates of quitting
  • 1.3X higher rates of new employment

Most pawn clients face problems related to personal financial instability. No other mainstream lending model will provide service to a client that does not have a stable work history. Perhaps more importantly: former pawn clients align quite closely with the “shop only” control group. This lends significant clarity to the fact that pawns are not “debt cycle” transactions. Instead, they resolve specific, temporary needs.

There is also clarity in understanding the total audience for the pawn service. In his 1994 book “Fringe Banking: Check-Cashing Outlets, Pawnshops, and the Poor”, John P. Caskey said the following:

“…estimates suggest that pawnshops provide significantly less than one percent of consumer credit in the United States. By other measures, however, pawnbroking plays an important role in U.S. Credit markets. The data suggest, for example, that pawnshops made about 42 million loans in 1991. Even allowing for multiple loans to a core group of customers, pawnshops clearly serve several million Americans each year, perhaps as much as 10 percent of the adult population . . .”, P49

It’s clear that a significant portion of Canadians are also underserved by traditional banking. Moreso: given the research it seems nearly impossible for banks to help those clients. Using the population model above it would seem that some ~3.8 million Canadians will cross a pawnshop door in their lifetime.