Why are Millennials Choosing to Take Out Payday Loans

Payday loans are very attractive for millennials

Payday loans from PaydayChampion lender are being used more frequently by millennials to get the cash they need. Their services offer a “short term” solution that allows those who wouldn’t otherwise be able credit to access credit. 

The study from Global Financial Literacy Excellence Center, George Washington University reveals how difficult millennials face personal finances. It found that 42 percent of those surveyed had used a different financial service within the last five year. This term covers car title loans (tax refund advances), and even products to help them study. A record 34% of respondents said that they have used pawnshops and payday loans.

Shannon Schuyler, a director of corporate responsibility for PricewaterhouseCoopers who sponsored the report, said that while some of the study’s findings, such as credit card abuse, were understandable and perhaps even to be expected, “it was harder to see the increased surge in things really understand “. Such as payday loans or pawn shop usage.

PBS NewsHour has covered the South Dakota payday-loan debt trap. In South Dakota, there is no interest cap. The annual interest rates on payday loans are in the triple-digits. However, the industry requires an average of 574 percentage. The average annual credit card rate is approximately. 15 percent. If you borrowed $ 100 from South Dakota and didn’t pay any interest, you would end up with $ 674 after one year. Most borrowers are unable to repay such loans and will instead take out another loan. A short-term solution to your problem can quickly lead you into a spiral of debt that will eventually result in even greater fees.

Poor communities have had to live with these alternative financial services for years. It’s no longer just low-income Millennials, but middle-class millennials holding college degrees who are turning to other financial services.

Why are millennials using pawn shops, payday loans, and similar services across socioeconomic barriers?

One reason is a lack of financial literacy. The study shows that only 24 per cent of millennials have basic financial literacy. This includes the ability calculate interest rates, understand risk diversification and understanding the relationship between interest and bond prices.

Schuyler suggests taking financial literacy classes in highschool and earlier. At the moment, 17 states only require students to take personal finance courses.

A second factor is despair. According to the survey, most millennials, if not all, have no savings. Nearly half (50%) said they wouldn’t be able borrow money to raise $ 2000 in the next 30 days if they had to. This isn’t just a millennial thing. Federal Reserve research showed that only 53% of adult respondents felt they could afford $ 400 for an emergency.

Schuyler stated that “if you go to the pawnshop, it’s important to pick this up right away because that’s when you need that money.”

Helaine Olen, co-author “The index card”: Why personal finances do not have to be complicated, noted that while the survey did no ask why millennials turned to alternative financial options, it did mention that student debt is likely to play a large role.

The average student loan balance for 2013 among 7 of 10 graduates from public and non-profit colleges was $ 28,400. Millennials find themselves in a trap because of student loans, rising rents, stagnant wages and other financial problems.

Olen stated, “They have enormous student loan debt. They have a difficult time getting into the work force. And starting salaries no longer are what they used be.” “So how are you supposed to do more when you have less? It works, but how?

David Weliver founder of Money under 30 website. “Even if there isn’t student loan debt,” you will still be competing for less-paying positions and the prices of everything other than gas are rising.

Weliver pointed out that many millennials still don’t have credit. “Many people were in early twenties when the Great Recession hit and thought they were smarter than others by avoiding credit. Weliver pointed out that even if there is only one student loan payment, it can have a huge impact on your credit score. Payday loans or pawnshops can offer a viable alternative to credit cards, regardless of your credit score.

Olen continued, “What would I like to know?”

So, what should a financially troubled millennial millennial do next?

Weliver suggested, “Make it rush for a couple of years.” Do a second job or work as a freelancer to sell things on eBay. “Not everyone can but, if you are able, think about it.”

Olen offers three steps for millennials to take in order to manage their finances.

  • Get rid of all high-interest debts.
  • An emergency fund should be set aside to cover unexpected expenses such as food, shelter, and other costs for the next three months.
  • Start saving money for retirement.

Olen said, “Start investing.” It’s crucial. Automating your work will make it much easier. These are excellent practices. It all depends on your financial literacy.

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