With millions of households struggling through the COVID-19 crisis, more people are starting to resort to payday loans. Taking out a loan in a time of financial crisis seems like a reasonable move — but payday loans in particular are harmful to borrowers, with some charging up to 615% interest during the pandemic. In this moment when Americans are stretched beyond their financial limits, employers are in a unique position to help. One of the ways companies are helping is by offering financial support to workers, so they can stay focused on their families and their jobs.
The unemployment rate for April is forecast to be over 16%, and the process for receiving unemployment benefits has proven to be difficult. That means that while lots of people may still have jobs to go to, nearly three-quarters of Americans are reporting that their households have reduced income.
Meanwhile, millions of Americans are still waiting on their stimulus checks, and 84% say that a single $1,200 check won’t be enough to cover everything they need for the duration of the lockdown. When you consider the fact that most people don’t have enough savings to make it through the pandemic, it becomes clear that there are millions of hardworking Americans who currently don’t have enough money for the basic necessities.
Payday lenders make their money off people who are struggling to make ends meet. Pew Trusts found that 12 million borrowers take out payday loans each year, with usage skewing stronger among lower-income Americans. Pew also found that 69% of borrowers took out a payday loan to cover a recurring expense, like utilities and food, while 16% needed the cash to deal with an unexpected car or medical expense. During COVID-19, that’s exactly what’s happening: Millions need help to pay bills, buy groceries, or get medical attention.
The problem is that payday loans can be nearly impossible to pay back, with over 80% of them rolling over or renewing due to the borrower’s inability to keep up. The result is fees — lots of fees. In fact, the average borrower ends up paying back $793 for a $325 loan. This is why the former director of the Consumer Financial Protection Bureau, Richard Cordray, refers to payday loans as “debt traps.”
At the most basic level, it benefits employers to help workers avoid stress. Financial stress in particular can cost businesses millions in the form of lost productivity, increased absenteeism, and higher turnover. It’s well documented that money is the biggest source of stress in America, and payday loans in particular are linked with increased stress and decreased health.
Employers can help employees combat this stress. Not only to see the benefits of stronger employee focus, attendance, and retention — but to let employees spend their time and attention on work, family, and building a better life.
This kind of help can come in many forms, ranging from increased wages to tools for building savings. Another way to help is to take stress and uncertainty off employees’ plates by giving them faster access to their own wages. Earned wage access (EWA) lets your employees buy groceries or pay for a repair before payday comes, without resorting to high-interest loans.
Earned wage access empowers employees to fix problems with their own resources, and stay focused on the things that matter. And Even’s solution helps your employees build a path towards financial security by building savings — making the need to access wages early in the first place a thing of the past. It’s why Walmart chose Even to help millions of associates build financial wellness, and access their wages early during COVID-19.
Research is already starting to show that prioritizing workers during COVID-19 will be the key to making it through to the other side. Some of the world’s biggest companies are answering the call to do better by their workers, and this is what employees will expect in a post-pandemic economy: an employer that shows it’s invested in employees having good lives, not just being good workers. Even is here to help organizations that are committed to strengthening bonds with employees. If you’d like to talk, just reach out.