Pay day loans are one of the greatest scurges of modern day finance; overcharging poor people for access to quick and often necessary capital to get by from day-to-day.
But is earnings-on-demand – live access to your pay irrespective of the monthly pay day at the end of the month – really the answer?
While I fully appreciate that it may be a more ethical solution with far less interest rates (bordering free?), I still don’t think it solves the problem:
Too many people are either (1) living way beyond their means or (2) in a position where they due to little fault of their own have more expenses than income.
In that situation giving people early access to their money is only going to make the issue worse longer term.
If you need 10% of your salary now rather than later, you will get 10% less at the end of the month. Then for the next month you will be 10% short + the 10% less you had going in because of the early advance. And so on and so on.
I understand this is a very strict interpretation of the idea behind earnings-on-demand, and that variations may apply. But I still think the underlying argument holds true:
That providing short term relief to people with a long term, systemic problem is no long term solution at all.
In that context what also bothers me a bit is the investor interest in this space. Because investors only flock if they think there is money to be made. And at who’s expense is this going to be?
Basically people who have little ability to pay to begin with. Does that really sound and feel right?
I am not so sure.
I think there are other things we need to get into play in order to solve the systemic issue.