“People who are taking payday loans are people who make $50,000, $60,000, $70,000 a year, own their homes and have a college education. That’s the fastest-growing group. It’s not people who ‘don’t know better.’”
Banks have become more expensive, says Servon, making more of their money from fees, and that automatically excludes people who can’t afford it.
There are three other primary reasons for the switch of the middle class from big banks to check cashers and payday loans: The increase in income volatility—people making different amounts of money week to week. “Income volatility has doubled in the last 30 years, so we have twice as much instability today. People’s ability to predict what is coming into the household has changed radically,” says Servon.
Additionally, since the 1970s, people have been making less money. “We see productivity rising, but the benefit of that is being accrued to a smaller number of people,” Servon adds.
Finally, Servon says we’ve experienced what’s known as the “great risk shift”: Decades ago, the public and corporate sector took on more of the risk of being sick or retiring early. Today, she says, “people’s employment comes with less insurance, less benefits. All that risk is now shifted on to individuals.”
All of this, she says, puts the middle class into a much more precarious situation.
According to her best estimation, nearly 30 percent of the U.S. population now uses alternative financial services. While check cashing specifically will decline as more and more people use technology to make payments, there will still be growth in the industry, such as with loans.
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