2 in 5 Millennials Have Used Payday Loans

Millennials are big users of payday loans, which have steep interest rates that can really mess up their finances.

Remarkably, two out of five people in their mid-20s to mid-30s have used a payday loan, which is more than double the frequency for people in their late 30s, says Melody Harvey at the Pardee RAND public policy school. Older generations use them even less, other surveys have shown.

Harvey’s new research has produced some evidence that something can be done to protect vulnerable young adults in the future: require them to take money management classes while they’re still in high school.

The use of payday loans is part of a broader trend among Millennials, she said. They also turn to desperation financing such as pawn shops to raise quick cash or rent-to-own schemes that, in the end, require them to pay much more for consumer products like furniture and computers.

Many young adults probably gravitate to high-cost forms of financing, because they’re strapped for cash after paying their rent and student loans every month. They also start their careers at relatively low wages and haven’t established the strong credit histories required to qualify for traditional, lower-cost debt.

But while poor people are often forced to use payday loans to solve an impossible financial problem, young adults could be using them partly to fund profligate spending.

In a LendEdu survey of Millennials in July, one in three said they aren’t saving for retirement. And the amounts that all of them – savers and non-savers – are spending at restaurants and food trucks exceeds how much they’re saving.

There is a lack of expert consensus, and even big doubts, about whether or how well financial education works. Harvey lends support to the proponents.

States that mandate money management courses “significantly reduced the probabilities” that high school students will use expensive financial services like payday loans when they grow up, she concluded.

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