Payday loans are a loan of last resort for a lot of people. A Hoyes Michalos – Harris Poll conducted last year shows that 10% of Ontarian’s admitted to using a payday or short-term loan (we’ll refer to it as payday loan for simplicity) in the past twelve months. However, that number increases to 15% when you look at just millennials between the ages of 18 and 34.
In this same study, 20% of Ontarians between the ages of 18 and 34 said they would definitely/likely apply for a payday loan in the next twelve months. In contrast, 14% of Ontarians 35-54 would definitely/likely apply for a payday loan in the coming year and only 4% of those 55 and older stated they would do so.
It’s not surprising that young people are more likely to admit they use, or will use, payday loans. Just starting out, or possibly still in school, millennials tend to earn less and have lower credit limits. That means that payday loans are often their only source of quick money when other sources of credit run out. In fact, 14% of payday loan users (those who used a payday loan in the last 12 months) aged 18-34 said they sought a payday loan because they were denied credit at a bank and 41% agreed that payday loans were their only source for borrowing money.
The Insolvent Millennial Debtor
In our original Harris Poll, 39% of millennial payday loan users (those 18-34) said they sought a payday loan because of the amount of debt they carried. We could interpret this to mean that 4 in 10 young payday loan users use payday loans because they already have too much debt.
Sadly, the result of borrowing debt on top of debt is usually insolvency.
Our Joe Debtor study found that 38% of insolvent millennials between the ages of 18 and 29 had at least one payday loan outstanding at the time of their insolvency. They in fact owed, on average, $2,292 on 3.1 payday loans. Insolvent millennial debtors were the most likely of any age group to have a payday loan.
Not Worried Yet? Check The Trend
How about if we told you that the percentage of young debtors with a payday loan has been increasing dramatically? The percentage of young debtors with a payday loan was only 18% in 2013; this increased to 30% in 2015 and now 38% in 2017. Young people are also making up a higher percentage on insolvent debtors overall – 14% in 2017 up from 12% in our last two studies. While student debt is also an issue for millennials, their increased use of payday loans is making their financial situation much worse.
One last concerning statistic from our original study on payday loan use in Ontario: 60% of payday loan users between the ages of 18 and 34 would definitely/probably recommend a payday loan to family, friends or co-workers.
That is a staggering statistic, especially when they’re effectively recommending that someone take on a loan with an annual interest rate of 468%. So there you have it. Social proof that may mean we need to better educate young people about the longer-term risks of using payday loans.