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Walmart employees should use the new early pay policy as a last resort

Melody Hahm
Senior Writer

Walmart, the largest private employer in the U.S., will begin allowing its 1.44 million employees to access their paychecks before payday.

This policy presents a better alternative to expensive payday loans, but may still encourage people to live beyond their means.

After two years of talks with Even, a fintech startup that helps users budget by accessing upcoming pay early, Walmart (WMT) is rolling out the app to its entire workforce. In conjunction with PayActiv, Even lets employees take up to 50% of the amount they have earned up to that point, prior to the standard 2-week pay period. Individuals can do this interest-free up to eight times annually.

Despite having these guardrails in place, it’s uncertain whether employees can achieve true financial health through an app.

“Paycheck advances as a last resort”

The policy allows employees to claim the earnings they’ve already made, just not during the traditional two-week period.

This, however, doesn’t mean they should use the option excessively, several financial planners told Yahoo Finance.

“I think this is a great perk for employees to have, provided they are able to use it responsibly.  The key is to treat it the same as an interest-bearing payday loan,” said Corey Sunstrom, director at Hobart Financial Planning and founder of thepocketadvisor.com.

“This means only taking advantage of paycheck advances as a last resort. If your car breaks down, or you have immediate medical issues, this can be a great tool to help offset costs and get you back on your feet as soon as possible,” he added.

Indeed, while emergency situations would certainly qualify as a reason to claim part of your paycheck early, the danger is that this may not always be the case.

“There is a risk that receiving money in advance makes it easier to overspend. Workers will have to take care to spread the money they receive in advance so they don’t come up short at the end of the month,” said Kimberly Palmer, banking expert at NerdWallet.

According to the Federal Reserve, 44% of American households don’t have $400 in emergency savings. And a recent survey found 78% of Americans live paycheck to paycheck. Walmart’s new policy called earned wage access (EWA) intends to prevent individuals from resorting to payday loans or 401(k) withdrawals, which come with exorbitant interest rates and penalties.

Schlossberg said he’s hoping to be one piece of a holistic solution.

“We think of ourselves as a toolbox full of multiple offerings, like Instapay for budgeting. Over time, people will slowly start to make progress. To think we’re going to solve this overnight with one product is foolish. It’s our intention to have this long-term focus to address all the people in the puzzle,” he told Yahoo Finance.

The power of fintech

Among Even’s features, Walmart employees will be able to budget for upcoming bills automatically and see a balance that reflects what they can actually spend.

“This is a great example of how technology can be used to improve peoples’ financial lives. We believe technology is the only way to efficiently help the millions of Americans who have traditionally been ignored or taken advantage of by the financial system,” said Nick Holeman, a certified financial planner at Betterment.

“It’s encouraging to see an employer go beyond the standard requirements to improve the financial wellness of its employees.”

Meanwhile, independent financial planner Stephanie Genkin adds that fintech overall can be a major asset to those who use it responsibly. It still doesn’t address, however, the “painful lack of financial education in America,” she said.

“The average person has trouble managing day-to-day expenses. We live in a world where everyone around us appears to have the latest and greatest. This enables people to slip on a banana peel to make mistakes they would make anyway,” she said.

The bigger picture

Though apps like Even have the potential to enhance the lives of Walmart employees, it’s unclear what percentage of the workforce will take advantage of the service — responsibly.

The central issue remains: wage stagnation. While Walmart hiked its minimum wage to $10 in 2015, it still falls short of competitors like Costco and Target that pay $13 and $11 an hour, respectively.

Most Americans benefit from economic growth through wages, not from investment incomes. But, since the early 1970s, the hourly inflation-adjusted wages have grown a meager 0.2% every year, as economists Jay Shambaugh and Ryan Nunn point out in Harvard Business Review.

“The fundamental thing is in the case of the Walmart worker, they’re not being paid enough. In terms of the entire country, we’re not teaching people to save, budget responsibly. I think some people will be helped by this. An app’s not going to solve the problem,” said Genkin.

The program is a welcome alternative to payday loans, but it’s a far cry from a solution to wage stagnation. Despite this being the case, other big corporations may end up offering the same perk to their low-income employees.

Melody Hahm is a senior writer at Yahoo Finance, covering entrepreneurship, technology and real estate. Follow her on Twitter @melodyhahm.

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