Answer: 42% of millenials have used an Alternative Financial Service (AFS, defined as payday loans, pawnshops, auto title loans, tax refund advances, and rent-to-own products), according to this recent study titled “Millennials & Financial Literacy— The Struggle with Personal Finance” completed by PWC and George Washington University. This number frankly shocked me and will ensure that we publicize the NGPF lesson on Predatory Lending.

Here were the other takeaways from this report (and if this isn’t a call to arms for personal finance education, I am not sure what evidence could be more convincing!):

• Have inadequate financial knowledge
  • When tested on financial concepts, only 24% demonstrated basic financial knowledge.
• Aren’t happy with their current financial situation
  • When ranking satisfaction on a scale of 1-10, 34% were very unsatisfied.
• Worry about student loans
  • When asked about their ability to repay their student loan debt, more than 54% of Millennials expressed concern.
• Debt crosses economic and educational lines
  • Among college-educated Millennials, a staggering 81% have at least one long-term debt.
• Are financially fragile
  • Nearly 30% of Millennials are overdrawing on their checking accounts.
• Are heavy users of Alternative Financial Services (AFS) In the past five years
  • 42% of Millennials used an AFS product, such as payday loans, pawnshops, auto title loans, tax refund advances, and rent-to-own products.
• Sacrifice retirement accounts
  • More than 20% of Millennials with retirement accounts took loans or hardship withdrawals in the past year.
• Don’t seek professional financial help
  • Even with inadequate knowledge, only 27% of Millennials are seeking professional financial advice on saving and investment.

This study led me to search for this PBS NewsHour video (about 8 minutes) on the payday lending and title loan business (see questions for students to answer below):

Questions to answer while watching the video:

• What initially led to the financial stresses of the couple in the story?
• What would have prevented this stress from occurring?
• How does a title loan work?
• Do some simple calculations on the title loan:
  • How much did the couple receive from the title loan company
  • What were their monthly payments and the term of their loan?
  • If they made all of their payments on time, how much would they be paying in interest over the the term of the loan period?
  • Does this seem like a good idea?
• What does the term “flipping” mean? How many times is typical payday loan flipped?
• What is average interest rate on payday loans?
• What are the causes of this “terrible” cycle of debt?
• Why haven’t legislators been able to pass laws to limit the maximum rate of interest in South Dakota?
• After watching this video, what are your main takeaways when it comes to this type of lending?

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Interested in learning more about this topic? Check out the NGPF Lesson on Predatory Lending!

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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