People who are born between the early 1980s and early 2000s are often referred to as the “Millennials”, Generation Y or the Millennial Generation – and they are turning to Payday Loans in huge numbers.
A new study now reveals that 42% of the millennials have turned to an alternative financial service, like payday loans. In fact, in the last 5 years, 28% of millennials who have at least college education have taken a payday loan. It also reports that 6% other millennials without college education is seeking these loans. And this number seems to be increasing too. They also discovered that 30% of them were overdrawing their checking accounts. The college educated millennials were found to be between the age of 23 and 35 years according to the results of the study.
The extensive study was carried out by the Global Financial Literacy Excellence Center at George Washington University and PwC jointly. It was titled “Millennials and Financial Literacy (pdf file)”.
Detailed analysis of the study revealed that millennials were struggling to deal with their personal finances, and turning to payday loans as this offered immediate relief. For instance, there was this person from Queens, New York, aged 31, who wanted to open a second jewellery store but had little cash in hand. He turned to a local quick cash provider as it was difficult to get a bank loan.
Payday Loan – The Only Realistic Alternative
39% of such people have bank accounts, and 35% of them are credit card users. In theory therefore, they should have had other options to get cash. In reality however, bank loans and loans from other conventional sources are often too complicated. It takes a lot of time too that many cannot afford. So that is one major reason why for too many of them a payday loan seems like the only viable alternative.
Myth Broken
There is a common myth about payday loans and such other quick cash schemes. It is said that only people from economically backward sections of the society, blacks, Hispanics, and Asians take these loans. It is also said that only those who cannot get credit otherwise will opt for a payday loan. This is clearly not the case according to the findings of this extensive study. The reality is that, a lot of others are asking for these loans as well. Anyone who needs quick cash is asking for them. And among them are those who can use banks and credit cards as well.
But the analysis may not be so simple. While disclosing the findings, co-author of the study and the PwC Charitable Foundation President, Shannon Schuyler said that misuse of credit cards and other findings were understandable and expected, but it was harder to explain things like the increased demand for payday loans.
Shannon says that there are many middle-class young adults who are taking a payday loan as they are struggling to make their way in the real world just after college. These people are not yet established in life and will often seek financial help from their mom and dad’s. They have got used to a certain lifestyle and don’t understand what things actually cost. Also, what happens if the parents aren’t able to, or cannot give them the money they need either in college or just after that?
There could be another factor as well. Some of them want to go for more education, but their parents are not able to support that. Many of them already have a big debt because of student loans. In 2013 for instance, 7 out of 10 graduates from non-profit and public colleges had an average student loan debt of $28,400. Plus, starting salaries aren’t what it used to be once. Low starting salaries, stagnant wages, and rising rents are making life difficult for them.
It isn’t easy even if you don’t have a student loan. You will still have to compete for fewer well-paying jobs. Price of everything, other than gas, is on the rise too.
Payday loans seem like the only respite, and they are naturally turning for them. They are able to get the money they need very quickly. It looks like the only resource. It makes sense too as the debt is just for the short-term.
Other Factors That Are Pushing Millennials Towards Payday Loans
One explanation that has been used to explain this trend is lack of financial literacy. The study reports that just about 24% of the millennials have basic financial knowledge. So Schuyler suggests that there should be financial literacy classes in high schools. But as of now, students are taking these classes in just 17 states.
Desperation could be another factor. The study indicates that many millennials don’t have adequate savings that they can fall back on during difficult phases. In fact, close to 50% of them said that they cannot find $2000 if they suddenly required the money. This however isn’t just restricted to the millennials. According to the findings of a Federal Reserve study, 53% adult Americans would be able to come up with just about $400 in a hypothetical emergency. Above this, they will need to borrow money or sell their possessions.
Are These the Only Reasons?
Some of this analysis could very well be true. However it might be inaccurate to just blame them for the rising popularity of payday loans. Lawmakers in different states have been trying to impose stricter restrictions on such loans for a while now. There has been a lot of bad press about them in recent times.
But their popularity still seems to be growing in spite of all this. So there are definitely deeper reasons. The payday loans and quick cash loans must be fundamentally right, at least by the public perception. Often, such a loan seems to be the only practical option for a lot of people as well, and they appreciate them.
Credit Score and Payday Loans
Another reason the millennials are going for payday loans is because of the fact that, the process doesn’t affect their credit records negatively like other loans. They are worrying that a lower credit score might impact their jobs or ability to get a mortgage when needed. Sometimes they will be turned down by the traditional lenders. And of course, the payday lenders don’t look at credit scores while approving the loan. This means someone with a low score can get the money too.
Many of those in their early 20s used to once believe that it was smart to avoid credit. Missing just one student loan payment has a greater impact on the credit score when you hardly have any credit history. Payday loans look like a good source when you have poor or no credit history.
Some critics have advised the millennial to take a second job, sell stuff, get into freelancing, save for an emergency, and other things to make both ends meet. But not everyone can do this. Finding a second job can be very difficult for most. Millennial have also been advised to seek financial help from family. That can also be a difficult proposition. Often, families aren’t able to help.
A payday loan is a small-dollar loan. Repaying this shouldn’t be a problem. The interest burden is also not too much as you have to repay after just a few weeks. So the ideal situation would be to take a loan when you need it and see off the first couple of years of your working career. Salaries are bound to improve in this time. You will then have more disposable income and lead a more comfortable life.
However you must apply for Payday loans with a low interest rate lenders. Our partnership with exclusive lenders across USA, who follow strict rules of the states will help you to get a low cost loan.
Apply for a low cost payday loan with us here.
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