I was reading about the movement to apps and services that pay workers daily. I read that ~78% of workers in the US live pay check to pay check, and that allowing people access to the money they earned that day would be a good move.
There are also restrictions in place, such as, you can only withdraw one hour after you finish. Fees also seem rather cheap (some just $1 a month per employee)
I see it both ways, that allowing access is good, but also think (if people are living paycheck to paycheck) won't they just need to continually borrow from the next paycheck (essentially just shifting needing money to this week from the week past the paycheck?)
Just wanted to get some thoughts on the matter, stay safe.
My understanding is that most people get paid every 7-14 (or 15) days out of sheer convenience for the employer. It makes accounting and distribution of the money easier. I could be wrong, but that’s how it was explained to me.
I don’t think daily payments would make people better off financially. I’m not opposed to daily pay, but I don’t think it would solve a whole lot. There’s multiple forces at play that cause people to be financially strapped for cash. You’d be surprised how many people in this big baller mansions and the brand new S Class and Bentley SUV fall into this category too. I’ve seen a LOT of people in the OC area who cannot afford a dip in income without racking up serious debt. They’re levered TF up. I digress.
I think the US should have some basic personal finance class mandatory in middle school through high school. Really drill it into them to not max out credit cards when you’re working a part time job in college. Understand what a mortgage is, TVM, what a 401k actually is.
Many won’t listen, but I feel really bad for people told lies and misinformation about personal finance. I’ve known a few people who were taught to never get a credit card and never have a credit score.... crazy stuff.
Edit: I’m also a fan of UBI. I think we could cut excess amounts spent on stupid things and get UBI going. But I also have an extremely dark and bleak view of American politics so I would be shocked if they did anything good for the general population. But I’ll admit I’m very jaded in that realm.
I agree with a lot of what you said, and believe in a perfectly functioning environment we would be teaching personal finance in schools and people would buy everything in cash (so no credit cards/credit scores). I think there are a lot of roadblocks:
To teach personal finance in schools, you need teacher who understand that. Most who understand this don't go into teaching. To get teachers to be able to teach it, you would need to re-train teachers or fire a lot of them, which I don't think is a good idea or would work with most teachers unions or state governments changing the curriculum. (side note: I think is also the reason we don't have more relevant topics in schools. If you had to build a curriculum for middle/high school students now, thing of all the things you would include that aren't included.)
In terms of personal finance, credit is only offered because someone is making money on lending. Therefore, people are trying to get you to buy more using credit, or borrowing. I think in a perfect world, as stated, this should be eliminated, but I also think that's like hoping for a world with no pre-marital births.
On daily pay, I agree. I understand people plight as mentioned below, that some are so strapped for cash they need it that day. I guess in a perfect world, people would manage their money better, which is really what I debate in my head. But, as I've said, we don't live in a perfect world. So do I think it will change things, as you've stated, not really, it will jsut shift some things around. Basically a band aid on a cancer .
I don’t think a world without credit would necessarily be a good thing - as financiers we all should know that there are good and bad uses of debt. The problem is that people carry excessive leverage in the good times with no cash reserves. I wouldn’t want to give up access to my credit lines for emergencies though.
We rolled out paying weekly for factory work instead of twice a month and we have a WAY easier time with recruiting.
I also enabled Cashout, which is an awesome feature for employees. It allows them to "cash out" hours they have worked ahead of their usual pay day: https://gusto.com/product/cashout
Have you noticed (or had time to notice) any differences in retention?
Yes. It's a huge huge win for most employees in that price range. Keep in mind these are people who have trouble getting to work if cash isn't distributed at the same time every week. We had a payroll error which resulted in people being paid at around 4 PM instead of the previous night...and some people couldn't fill their car up, etc...
So being able to do things like use Gusto Cashout + frequent pay is a huge help for them. It doesn't cost us much more time to do either because of how easy Gusto is to use. With some companies using ADP, etc... it's def worse.
Some stuff I read said that's actually the benefit.
One article someone mentioned they would take a $15 an hour job that paid daily over an $15.50 hour job that pays bi weekly.
Yea I heard that on a Planet Money podcast. Think it was like a Burger King or something in Massachusetts
To your point, I was stunned with how many of my co-workers at a firm with highly educated people had people chomping at the bit for the next paycheck--a good deal of them spend money as fast as they get it and would love to be paid more quickly. I'm not surprised with your company's experience recruiting.
Paying more frequently has got to be one of the easiest reforms a business can implement to improve recruiting.
Jumping off your point, that's somewhat how I see it going.
The way I think about paycheck to paycheck is, you spend everything you make. So if you draw it down per day, or even some of it, and have little to no left at the end of two weeks, you're still in the same situation.
As as example. Say you work day 14 days (day 1-14). If you got paid on day 14, that paycheck carries you til the next paycheck; if you get paid per day, then past day 14 you just need ot start drawing on your next payceck. I get it puts money in your pocket, but to me it only sounds like it solves not getting paid for 14 days.
I have looked at some of these companies before and it makes a lot of sense. We are really providing interest free loans to our employers whenever we take on a new pay cycle.
This system of waiting two weeks made sense when payment processing was much more onerous, but in a world of computers and general transaction software it is more for the benefit of the employer’s cash management. A convenience that is unlikely to be transferred to the employee in the form of compensation.
I really like firms such as Dailypay (I believe they do the $1 fee you mentioned) that seek to change this. It would also end the parasitic payday loan industry if done to scale, which I would be a big fan of.
Is that $1 per day or $1 per month? I thought someone above mentioned it was $1/month. How is that even profitable for the company? Seems like an easy business model--investors capitalize the business, which uses that capital to front paychecks. But that fee structure produces hardly any interest. That's got to be an Uber-like scheme to build a user base before a major sale or IPO.
I don't know the sales model, just what I read.
To your point, its always a scheme right?
I think you hit the nail on the head, at least of what I was trying to say.
I think it all depends what you think of when you think of people who live paycheck to:
Is it someone who makes six figures but can't control their spending? Is it someone who splurges too much but makes enough to live? Is it someone who makes a paycheck but is too lazy to get a better job? Is it someone who works very hard, has had tough times, and is just trying to make ends meet?
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