Why Payday Advances and Financial Wellness Do Not Go Hand-in-Hand

According to a recent study¹, 73 percent of American adults regularly experience financial stress. These worries include:

• Not having enough emergency savings
• Insufficient retirement savings
• Inability to pay bills
• Paying down debt

Financially stressed employees are less productive at work. Nearly half of employees struggling with finances spend three hours or more at work each week dealing with personal financial matters². 

Employees have begun looking to their employers for help gaining financial health, and employers are stepping up.

However, despite having the employees’ interests in mind, not all financial solutions create the financial health employees seek. In particular, payday advances have the potential to continue the financial stress cycle.

What Are Payday Advances?

Some employers offer payday advances so that their employees have access to their paychecks ahead of schedule.

The idea is that employees feel financial stress due to poor timing. In other words, their bills are due before the money they’ve earned hits their bank account. 

When employers offer payday advances, the goal is to help employees:

• Pay their bills on time
• Reduce late fees
• Avoid high-interest payday loans

Unfortunately, the upsides to payday advances do not outweigh the downsides.

Debt Never Equals Financial Wellness

Although having access to money earlier can be helpful, offering payday advances only keeps the debt cycle going.

Yes, employees get access to their money sooner, but not without having to pay a fee to do so. The fee is significantly less than the fees for payday loans, but the advance still costs money that could be better used in other ways. 

If your employees could wait for their funds, they would have access to more money that could be used to meet financial goals such as saving for retirement rather than paying for an advance.

Additionally, borrowing money to get out of money problems is not a sound financial principle. Even if the employee intends to pay back the advance quickly, using an advance is not substantially different than pulling out a credit card.

Employers are unlikely to suggest that an employee use a credit card to pay their day-to-day bills, so why should an employer suggest a payday advance?

On the surface, employees may seem to have a timing issue, but upon closer examination, the real issue is poor money management often caused by poor financial literacy.

By offering payday advances, employers are inadvertently helping their employees continue poor habits.

Why budget or save if they can easily get a payday advance?

Behavior Change is Key

Financial wellness means having the knowledge, ability, and desire to make intelligent financial decisions, as well as having the capacity to live a happy life within one's means.

The key to achieving financial wellness, according to a 2017 Aon Hewitt report³, is understanding financial concepts and creating appropriate financial habits. Providing payday advances for employees does neither. 

The best financial wellness programs focus on behavioral change⁴ by focusing on:

• Social cognitive theory: Change occurs through social interaction.
• Positive psychology: Change occurs when people feel good about themselves and their future.
• Stages of change: Change occurs in small steps.
• Gamification: Financial situations are presented as games so that change can be fun.

The Enrich Financial Wellness program uses behavioral change psychology to help employees change financial behaviors, and internal data shows that it works.

One primary user found that after one year, more employees increased their savings, contributed to their retirement plan, and paid off their credit cards each month⁵. As employees learn and practice these new skills, their financial stress decreases⁶. 

Employers are right to seek solutions that help reduce their employees’ stress. However, rather than consider payday advances, employers should offer a holistic financial wellness program that provides verifiable results.

Download full report on Enrich's Financial Wellness Behavior Change Study

1 - https://www.cnbc.com/select/73-percent-of-americans-rank-finances-as-the-number-one-stress-in-life/

2 - https://www.theexperience.work/wp-content/uploads/2018/06/pwc-2019-employee-wellness-survey.pdf

3 - https://www.hrdive.com/news/successful-financial-wellness-programs-require-behavioral-changes-not-just/511929/

4 - https://russellinvestments.com/us/insights/articles/wellness-is-wellness

5 - https://www.enrich.org/financial-wellness-resources/financial-wellness-behavior-change-data-study 

6 - https://www.enrich.org/financial-wellness-resources/financial-wellness-behavior-change-data-study