Millions of middle-class families occasionally face the uncomfortable and expensive situation of temporarily running out of money. Many of these families live paycheck to paycheck, and sometimes those paychecks are a few days late or a few dollars short. Indeed, almost half of all Americans report that they “either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money.” Living on the financial edge creates problems that those with a cushion never experience, including a large and often hidden cost: America’s slow payment system.
American families spend $15 billion a year in overdraft fees and an additional $9 billion in payday loans.
When you hit the zero-lower bound of your bank account, a tipping point
occurs. Simply covering basic expenses of life — paying bills, childcare, or shopping for groceries for the weekend — can cause families to rack up hundreds of dollars in fees from bank overdrafts or late credit card payments. Some families may even require small, but expensive, small-dollar loans — also known as “payday” loans.
These fees add up. American families spend $15 billion a year in overdraft fees and an additional $9 billion in payday loans. Every payday loan involves someone with a bank account, as the loan is based on writing postdated checks for collateral. But what if I told you there is a solution to this problem as simple as having money instantly appear as fast as an email or text? It exists and here’s how we could do it.
When you deposit a check or your employer sends a “direct deposit,” you probably don’t think about how the payment system actually works. At one point the money just shows up. You may not realize that it can take up to five days for your money to be available for you to use; a “direct deposit” is not an instant one. In fact, depending on where you live and what time of day your employer sends the order, or you deposit the check, your funds can be caught in a byzantine payment system for days.
What does this mean? Imagine you deposit your paycheck, a child support payment, or some money you earned from a side job, on a Saturday morning and Monday is a holiday. Your money won’t be available until Tuesday at the earliest, more likely Wednesday or even until the following week, depending on how you make the deposit.
What if you have to pay your rent, daycare, or credit card? The obligations of
When you deposit a check or your employer sends a “direct deposit,” you probably don’t think about how the payment system actually works. At one point the money just shows up. You may not realize that it can take up to five days for your money to be available for you to use; a “direct deposit” is not an instant one. In fact, depending on where you live and what time of day your employer sends the order, or you deposit the check, your funds can be caught in a byzantine payment system for days.
What does this mean? Imagine you deposit your paycheck, a child support payment, or some money you earned from a side job, on a Saturday morning and Monday is a holiday. Your money won’t be available until Tuesday at the earliest, more likely Wednesday or even until the following week, depending on how you make the deposit.
What if you have to pay your rent, daycare, or credit card? The obligations of
When you deposit a check or your employer sends a “direct deposit,” you probably don’t think about how the payment system actually works. At one point the money just shows up. You may not realize that it can take up to five days for your money to be available for you to use; a “direct deposit” is not an instant one. In fact, depending on where you live and what time of day your employer sends the order, or you deposit the check, your funds can be caught in a byzantine payment system for days.
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Posted By: agnes levine
Tuesday, April 10th 2018 at 4:37PM
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