New Data: Living Paycheck to Paycheck Triggers Personal Loan Demand
When we think of those struggling between paychecks, people making six-figure incomes don’t typically enter the picture. But PYMNTS research continues to find that an alarmingly high percentage of the well-compensated aren’t making it financially from one check to the next.
That’s one of several important revelations from the September edition of Reality Check: The Paycheck-to-Paycheck Report: Personal Loans Help 36M Paycheck-To-Paycheck Consumers Stay Afloat, a PYMNTS and LendingClub collaboration.
See also: Reality Check: The Paycheck-to-Paycheck Report
As this latest installment states, “one-third of such earners live paycheck to paycheck, in fact, and 12% struggle to pay their bills. These individuals also account for 32% of personal loan demand in the United States, according to our latest findings.”
Living paycheck to paycheck is attracting more of these higher-earners to loan products that can help balance the personal financial scales, enabling them to get caught up and even pull ahead on certain debts (student loans stand out), as our most recent survey of U.S. consumers shows.
Per the new study, “24% of consumers in the U.S. have used personal loans. This makes them the second-most popular type of — typically — unsecured credit product after credit cards (used or acquired by 73%), and the fourth-most common overall lending instrument after auto loans (50%) and mortgages (45%).”
See also: Reality Check: The Paycheck-to-Paycheck Report
A Collection of Contributing Factors
Noting that “the prevalence of living paycheck to paycheck among personal loan users suggests that personal loans have become a mainstream financial tool for Americans, with paycheck-to-paycheck consumers driving most of the demand,” the September edition of Reality Check states that “Americans’ need for credit fluctuates depending on their evolving circumstances and ability to prepare for the unexpected.”
A set of crucial factors set paycheck-to-paycheck lifestyles apart, with the presence or absence of children in the household emerging as decisive for many of those who struggle with finances.
Per the latest study, “28% of respondents who live in households with a child have taken out personal loans, one-third more than those who do not live with a child (21%). Paycheck-to-paycheck consumers living with a child are again approximately one-third more likely to be personal loan users (32%) than their counterparts in households without a child (25%). These trends hold across other credit products as well. Consumers living with a child are 31% more likely to have taken out another type of loan, such as a home equity product, on average.”
See also: Reality Check: The Paycheck-to-Paycheck Report
Savings and Earnings Are Both Revealing Metrics
Other factors influencing borrowing to cover living expenses include things like rent and mortgage payments, as well as personal savings — or lack thereof.
The September edition of Reality Check points out that “savings level heavily influences consumers’ demand for personal loans,” with 53% of personal loan users surveyed reporting less than $2,500 in savings, “suggesting they are financially vulnerable to emergencies or loss of employment.” Some 46% of the average sample are in the low savings group.
The fact that high-earners are among those living paycheck to paycheck is something of a shocker, though clearly a great many higher-earners do not report having money troubles.
“High-earning consumers tend to exhibit less demand for personal loans on average, though, as 36% of all respondents qualify for this group, yet only 32% of personal loan users earn this much,” per the study. “The opposite is true for the middle bracket, which holds a smaller share of the general U.S. population (31%) than of personal loan users (36%). It is also noteworthy that consumers in the lowest income bracket do not account for an outsized portion of personal loan demand, despite having more limited resources.”