New workplace benefit is a lot like a payday loan

When it comes to healthy financial habits, tapping into your income before payday is an old-fashioned red flag.

However, a growing number of companies, including Walmart, provide advances by offering what is now called “accelerated compensation”.

As a benefit, around 12% of companies include accelerated pay as another way to attract candidates like wages remain relatively stagnant at all levels, according to Michelle Armer, director of human resources at CareerBuilder.

“It’s not a loan,” said Jeanniey Mullen, director of innovation and marketing at DailyPay, one of those payroll service providers. DailyPay customers include Kroger, Mcdonalds, the Boston market and Berkshire Hathaway, according to the company.

“There is no reason for payroll to be made once a week or once a month,” Mullen said. Through the application, workers have real-time access to earned wages. Like an ATM, DailyPay charges a flat transaction fee of $ 2.99.

Granted, accelerated payment is not the same as a payday loan, which is generally considered the worst way to borrow money in a pinch. Often offered through payday lenders or even online, these short-term loans, typically $ 500 or less, can carry an interest rate that easily reaches triple digits, in addition to ‘fees. financial ”or service charges.

Many states have set a maximum payday loan fee ranging from $ 10 to $ 30 for every $ 100 borrowed. Yet a two-week payday loan with a fee of $ 15 for every $ 100 borrowed is equivalent to a annual percentage rate by nearly 400%, according to the Consumer Financial Protection Bureau.

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The reality is that more than three-quarters of all full-time workers live paycheck to paycheck, according to a report from CareerBuilder.

For many Americans, an unforeseen expense can still cause a significant setback, even if the country is experiencing a prolonged period of economic growth.

Although household income has increased over the past decade, it has failed to keep up with the increase in the cost of living over the same period.

“If someone has a short-term emergency it can help,” Armer said, “but it’s not something that should be abused or abused.”

“It makes sense that the technology is there so that you can access the money you’ve earned almost in real time,” said Douglas Boneparth, Certified Financial Planner and President of Bone Fide Wealth.

However, “what he tends to do is make bad discipline worse,” he added.

A better solution is to get your cash flow under control, Bonparth said.

First, look at your spending over a 12 month period to “understand how the money is going and where it is going.” From there, you can set a budget that takes your expenses into account and saves you money, he advised.

Most financial experts recommend putting at least a six-month cushion in a emergency fund to cover anything from a dental bill to a car repair – and more if you’re the sole breadwinner or in business for yourself.

“Personally, I would like to see six to 12 months,” Bonparth said.