It may be a side effect of growing up in the digital age, but recent reports are showing that it's not just their media that millennials want instant access to: it applies to their money, too. Learn why even though nationwide trends for payday loan use are slightly down, they're spiking among one particular group in the population: young users. Hear what it means for them, and how their high use can affect the rest of us, too.
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If there's one trait that defines millennials, it's this; they want what they want, when they want it. Think of it as a side effect from growing up in the digital age. Well it turns out, this on-demand attitude doesn't just apply to their media. It also applies to their money. And now more and more millennials are turning to Payday loan outfits and pawnshops to quench their thirst for instant cash. What does this tell us about the millennial generation? Stay tuned for an interesting new report on millennials and fast money, during this fairly quick edition of the Credit Report Report, brought to you by Experian.
According to a new study by the Global Financial Literacy Excellence Center at George Washington University, more millennials are relying on payday loan centers and pawn-shops for quick cash. But growing up in the information age, you'd think they'd know better. Let's be honest, after all. It's no secret that payday loan centers charge exorbitant interest rates. But the fact that millennials are among their biggest customers is surprising — at least to the sponsors of the report, PricewaterhouseCoopers. And it speaks to the fact that some millennials are really struggling with their finances — and it could be due to their lack of financial literacy, according to the report. Or, it could mean they've needed to take on too much debt just to get an education and survive in the job market.
Of those surveyed, 42 percent had used a, quote, "alternative financial service," end quote, in the past five years. That means auto title loans, tax refund advances, and rent-to-own products were all being used as sources of quick money. But the services most relied on were payday loans and pawnshops with 34 percent of respondents having used them.
According to PricewaterhouseCoopers, it was easy to see how millennials could get in over their heads with credit card debt. But the use of payday loans and pawn shops are usually used by those in poorer communities who don't have access to traditional sources of credit.
And while payday loans are legal, the industry remains highly unregulated. Some states, like South Dakota, allow payday lenders to charge whatever interest rate they see fit.
And when you can't pay the interest on the original loan, you take out another loan, and so on. Before you know it, you're in a debt spiral that becomes insurmountable. And that's not good for millennials — or the nation.
According to the study, many millennials don't have savings to fall back on, and nearly 50 percent said they wouldn't be able to come up with $2000 in a month's time if they had to. But, according to the Federal Reserve, that fact applies to more than half of all Americans should they be faced with a medical emergency. While the millennial study didn't pinpoint a single cause for the upsurge in payday loans and pawnshop usage, chances are it has a lot to do with student debt, says financial writer Helaine Olen. In addition to the debt, many are having trouble finding a job with starting salaries that can keep up with their expenses.
David Weliver of the Money Under 30 website echoes that sentiment. Quoted on pbs.org, he says that many millennials thought that they were beating the system by avoiding credit altogether during the Great Recession. Turns out, that wasn't too smart. Because missing a single payment on your student loan can have a much bigger impact on your credit score when you have little credit history, Weliver adds.
So what's his solution? Mr. Weliver has three simple steps for millennials to follow:
First, pay down your debt, starting with whatever has the highest interest.
Second, save up an emergency fund covering at least 3 months of expenses including food and housing.
And lastly, start saving for retirement.
"I'm not sure how much financial literacy all of that requires," says Olen. And when you think about it, it's a good bit of advice that everyone should follow. The only trick is… getting your hands on that money in the first place. And when you're desperate, those payday loan centers and pawnshops look awfully appealing. "Awfully" being the operative word.
That's it for this edition of The Credit Report Report. Remember, whenever credit makes the news, we'll make it easy to follow. Thanks for listening and we'll catch you next time.