Photo: Flickr / neotint
Payday loans, check cashing and prepaid debit cards have found a new customer in the cash-strapped twentysomething.Under-banked Millennials are using alternative financial services such as these at similar rates regardless of income level, according to a survey out today by Think Finance, which develops financial products for the under banked.
Half of those in the lowest income group surveyed, earning less than $25,000 a year, said they used a prepaid debit card in the past year. That was the same percentage as the highest income bracket — $50,000 to $74,999 a year — says the survey of 640 under-banked Millennials.
And 34 per cent of those with the lowest income said they used check cashers (which charge 1 per cent to 4 per cent of the amount of the check) in the past year; 29 per cent of those with the highest income reported doing the same. Respondents making more money used certain services at higher rates than those making less money, including payday loans and overdraft protection.
Lack of financial literacy, mounting debt, poor credit and no savings all attract Millennials to the convenience of these services, says Ken Rees, CEO of Think Finance.
“Millennials are under a lot more financial pressure” than their age group in past decades, Rees says. “Even at higher levels of income, they may not have full access to traditional bank products.”
Nearly half of young adult households, those ages 15 to 34, are considered under-banked, according to a survey by the Federal Deposit Insurance Corporation in 2009, the latest year for which there is data.
For a generation that grew up accustomed to instant gratification, it makes sense that young adults use alternative financial services, even if they come with a higher price tag but make cash available immediately, says Joe Wilson, a wealth management adviser at financial services firm TIAA-CREF and a Millennial himself. “Most things are to us readily accessible and convenient,” the 32 year-old says.
Ammy Orozco, 30, who works as an executive assistant at a Check Cashing USA branch in Miami, has a checking and savings account with Bank of America but often chooses to cash checks at work instead. She says she’d rather pay to cash a check immediately than pay for gas to drive to the bank. She has also taken out payday loans in emergencies. She’s tried to get a loan from the bank, but it was “stressful.”
“They wouldn’t confirm right away. … You’re there sitting and you need the money, and you’re like, … is this going to happen or not?”
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