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Walmart employees should view a new wage policy as a last resort

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Walmart, the largest private employer in the US, will allow its 1.44 million employees to access their paychecks before payday.

This policy is a better alternative to expensive payday loans, but it can still encourage people to live beyond their means.

After two years of talks with Even, a fintech startup that is helping users cut budgets by having early access to upcoming pay, Walmart (WMT) is rolling out the app to its entire workforce. In conjunction with PayActiv, Even employees can withdraw up to 50% of the amount they have earned before the end of the 2-week standard payment period. Private individuals can do this up to eight times a year without interest.

Despite these guard rails, it is uncertain whether employees can achieve real financial health through an app.

“Paycheck advances as a last resort”

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

However, that doesn’t mean they should overuse the option, several financial planners told Yahoo Finance.

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

“This means that the salary advances are only used as a last resort. If your car breaks down or you have immediate medical problems, this can be a great tool to help offset the cost and get you back on your feet as quickly as possible, ”he added.

While emergency situations are certainly a reason to take part of your paycheck prematurely, there is a risk that it may not always be.

“There is a risk that receiving money in advance will make it easier to exceed. Workers need to be careful to distribute the money they get up front so they don’t miss out at the end of the month, ”said Kimberly Palmer, banking expert at NerdWallet.

According to the Federal Reserve 44% of American households do not have $ 400 in emergency savings. And a recent survey showed 78% of Americans live from paycheck to paycheck. Walmart’s new Earned Wage Access (EWA) policy is designed to prevent individuals from resorting to payday loans or 401 (k) withdrawals that come with exorbitant interest rates and penalties.

Schlossberg said he hoped to be part of a holistic solution.

“We see ourselves as a toolbox full of different offers, such as Instapay for budgeting. Over time, people will slowly make progress. To believe that we will solve this with a product overnight is foolish. It is our intention to have this long-term focus on engaging everyone in the puzzle, ”he told Yahoo Finance.

The power of fintech

Under the capabilities of Even, Walmart employees can automatically budget for upcoming bills and view a balance that reflects what they can actually spend.

“This is a great example of how technology can be used to improve people’s financial lives. We believe technology is the only way to efficiently serve the millions of Americans who have traditionally been ignored or exploited by the financial system, ”said Nick Holeman, Certified Financial Planner at Betterment.

“It is encouraging to see an employer going beyond the standard requirements to improve the financial health of their employees.”

Now an independent financial planner Stephanie Genkin adds that overall fintech can be a great asset to those who use it responsibly. However, it is still not about the “painful lack of financial literacy in America,” she said.

“The average person has problems with daily expenses. We live in a world where everyone around us seems to have the latest and greatest. This allows people to slip on a banana peel to make mistakes they would make anyway, ”she said.

The bigger picture

While apps like Even have the potential to improve the lives of Walmart employees, it’s unclear what percentage of the workforce will be using the service – responsibly.

The central topic remains: wage stagnation. While Walmart raised its minimum wage to $ 10 in 2015, it still lags behind competitors like Costco and Target, who pay $ 13 and $ 11 an hour, respectively.

Most Americans benefit from economic growth through wages, not investment income. But since the early 1970s, hourly inflation-adjusted wages have grown a meager 0.2% each year, according to economists Jay Shambaugh and Ryan Nunn Highlight in Harvard Business Review.

“The basic thing in the case of Walmart employees is that they are not paid enough. In relation to the whole country, we are not teaching people to save and be responsible households. I think it helps some people. An app won’t solve the problem, ”said Genkin.

The program is a welcome alternative to the payday loan, but far from a solution to wage stagnation. While this is the case, other large companies may offer the same perks to their low-income employees.

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

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