Small-dollar loans irrelevant to today’s wealthy? Think again

There’s no doubt about it – money can get complicated. It’s emotional, compromising, and slippery, especially when one doesn’t understand how to use it to work for them.

That’s an issue of financial literacy – possessing the knowledge of understanding money and finance. You gain financial literacy by engaging in financial education; counseling through your local credit union, school classes, personal research, or other forms of reputable learning.

The reality is that financial literacy only goes so far when one doesn’t apply that knowledge in order to achieve financial health. It’s all about execution, and utilizing the contemporary financial tools like digital small-dollar loans to reach one’s goals. If you see a lot of your members struggling in this area, you already know they’re not alone. Not even close.

Applying that knowledge isn’t a guarantee, either. It’s one of those “use it or lose it” disciplines. A 2013 study found that efforts to increase financial literacy and education had an extremely low correlation with changes in the financial behaviors of those they studied. The researchers went on to suggest that for financial education and literacy to change behavior in lasting, real world ways, it requires application soon after learning. Otherwise, we forget or lose motivation. That’s just how the human brain works.

A further misconception is that the wealthy in America are somehow more knowledgeable and actionable in the ways of proper financial literacy, health, and wellness than others.

More money, just as many problems

The overarching challenge for many today is the assumption that earning a lot of money or being born into wealth automatically makes one good with money. Often, the reverse is true. The fact of the matter is that we simply haven’t built consistent financial literacy programs in our public education system to see the real-world results yet.

Certain financial concepts matter greatly – including a long-term mindset about money, helping our children learn and understand better financial habits and practices, and – this can be a big one for many couples – arguing less about household finances with your partner and staying tight about financial discipline.

The reality is that roughly 64 percent of U.S. adult consumers, or 166 million people, live paycheck-to-paycheck, according to a survey of 4,000 people by PMTS in December 2022, up from 61 percent the year prior. The latest number suggests an increase of 9.3 million Americans compared to a year ago.

Here’s the kicker: of those 9.3 million people, PMTS discovered that 8 million of them earned more than $100,000 a year. That tells us that much of the increase in the share of consumers living paycheck-to-paycheck is being driven by those on the higher side of the income scale.

And it’s getting more difficult for those earners to cover their expenses. In December 2022, 16 percent claimed it was tougher to pay their bills each month, contrasted with 11 percent in December 2021.

“The effects of inflation are eating into every American’s wallet and as the Fed’s efforts to curb inflation drive up the cost of debt, we are seeing near-record numbers of Americans living paycheck-to-paycheck,” said financial health industry insider Anuj Nayar. “While the number of Americans living paycheck-to-paycheck is close to the height we saw in the middle of the pandemic, the causes appear to be very different, as the economy is not sheltered in place like it was in 2020.”

Wealthy or no wealth, to borrow is human

All of this goes to say that wealth does not dictate protection from financial instability. Financial instability is represented regardless of the income bracket, particularly in times of increased economic uncertainty and inflation.

According to the PYMTS report, 93 percent of rural and 92 percent of urban consumers claim they’re noticing higher prices due to rising inflation. In response, researchers said people of all socioeconomic backgrounds will require some time to adjust.

“With inflation expected to continue, it will likely press consumers of all financial lifestyles further, and time will tell how they continue to adapt.” Small-dollar loans from credit unions remain a resourceful financial tool in helping individuals of all income brackets bridge the space to their next paycheck when they have more month than money.

There is a reason why consumer borrowing knows no single demographic. Its place as the first step in the five pillars to financial health is embedded in stone. Whether someone is making over $100,000 per year or scraping to get by to their next paycheck, a stabilizing, affordable, and accessible digital small-dollar loan program from a local credit union can be the difference between paying one’s bills or further exacerbating the damage done to their financial health status and goals.