The daily pay apps that let you withdraw your wages on demand
Living paycheck to paycheck can be painful, forcing you to take out a payday loan charging high fees. Several new instant pay apps offer a way out of this bind, allowing you to withdraw your earned wages on demand. But are these apps too good to be true?
Daily pay apps have only recently reached our shores, despite being up and running overseas for years.
PayActiv was launched in Australia last year, eight years after it went live in the US, where it boasts big name employer clientele such as Jenny Craig and Walmart. The service is free for employers and costs $5 per transaction for employees, who are limited to two withdrawals a day with a maximum withdrawal of $10,000.
Likewise, Greensill plans to roll out its pay app to the Australian market by June, which will provide workers with the ability to be paid daily for a withdrawal fee and at an interest rate claimed to be lower than the banks.
While research is still to be done on the effect daily pay apps will have on spending habits, the improved cashflow these apps provide could improve your budgeting by minimising discretionary spending.
The theory of mental accounting, most notably advanced by Nobel prize winning economist Richard Thaler, suggests you are likely to categorise income based on the frequency it's received.
You're more willing to blow your tax refund on non-essentials because you view it as a windfall, even though it's still effectively earned income. This situation is in line with a recent Xero study, which found that 58% of respondents mark their monthly payday as a celebration, while one-third believes they've earned the right to splurge.
On the other hand, you might put off saving or paying essential expenses because you know there's money coming in, but when deadlines hit you have insufficient funds.
"We see the benefit for people accessing their own money rather than expensive products like payday loans, buy-now-pay-later products, and credit cards," says Jonathan Dorse, project officer at the Salvation Army's Moneycare service.
"However, in using their pay on a daily basis people need to ensure that money is still being put aside for larger regular expenses such as insurance, electricity and council rates."
But it all comes down to your individual circumstances.
"For people who need to take our pay day loans in order to get to pay day these apps could be a boon," says Claudia Hammond, UK psychologist and author of Mind over Money.
For others, "waiting for your monthly pay check provides a kind of enforced saving which some find very useful".
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