How on-demand pay can transform financial management and break the cycle of debt
In today's economic climate, managing finances can be challenging and traditional pay cycles often leave individuals strapped for cash, especially as the pay cycle is ending.
This can often lead to many resorting to high-cost credit options to make ends meet. These high-cost credit facilities often impose extreme interest rates and fees, exploiting individuals in vulnerable financial situations. These predatory practices are known to exacerbate financial hardship and contribute to a cycle of debt that can be difficult to escape.
Initially unregulated, 2014 bought long-awaited regulations for one of the most common culprits of high-cost credit; payday lenders. But with the recent energy and cost of living crises, people are still struggling to juggle their finances and are depending on loans, credit cards and overdrafts, all of which come with interest and additional fees.
However, the rise of on-demand pay - also known as earned wage access (EWA), offers a promising solution, empowering people to take control of their finances and break free from the cycle of debt.
In this blog, we'll explore how on-demand pay can transform financial management, debunking the myth that it perpetuates debt.
Understanding the debt trap
With 11% of UK consumers using credit cards, loans and overdrafts more than usual in 2022, it is clear that relying on high-cost credit options can be a harsh reality. With limited access to their earned wages between paydays, people find themselves resorting to these expensive options to cover emergencies, unexpected expenses, or just day to day living, further exacerbating their financial strain. 2022 research from ONS reports that 26% of UK adults were using their savings to cover their living costs.
Enter on-demand pay
On-demand pay offers a revolutionary alternative to the traditional pay cycle. Instead of waiting for the bi-weekly or monthly paycheck, employees can access a portion of their earned wages instantly or on-demand, as they need it, removing the need for individuals to go to credit cards, loans or other forms of expensive credit.
This flexibility empowers individuals to address financial emergencies or cover essential expenses with immediacy, and without fear of circular debt. On-demand pay ensures that people are able to access what they have earned, while still ensuring that they receive money in their scheduled paycheck.
Managing finances effectively
One of the key benefits of on-demand pay is its ability to facilitate better financial management. By providing access to earned wages in real-time, individuals can better plan and budget their expenses, reducing the likelihood of overspending or falling into debt. Rather than waiting anxiously for the next payday, they have the flexibility to address immediate financial needs as they arise, fostering greater financial stability.
Contrary to the misconception that on-demand pay perpetuates debt, our survey data reveals a different reality. 75% of respondents who previously relied on high-cost credit facilities now report that they now rely less on those options, underscoring the transformative impact of on-demand pay in breaking the cycle of debt and promoting financial independence.
In addition, our data shows that average drawdowns over the last 12-month period stand at £84 - enough to cover a weekly shop, or emergency expense.
Alongside on-demand pay, offering financial education resources and budgeting tools can further empower individuals to manage their finances effectively. These resources can help employees develop healthy financial habits, such as budgeting, saving, and investing, which can contribute to long-term financial stability.
The future of pay
On-demand pay represents a powerful tool for transforming financial management and breaking the cycle of debt. More and more UK organisations are starting to offer this innovative employee benefit, and as for our Access EarlyPay users, almost 70% strongly agree that access to earned wages should be a fundamental right for all.
Employers can also benefit from implementing on-demand pay. It can help attract and retain top talent, improve employee productivity and engagement, and reduce administrative burdens associated with traditional pay cycles. Additionally, by promoting financial stability among employees, employers may see a decrease in employee absenteeism and turnover.
The sharp increase in organisations interested in on-demand pay resulted in the creation of the EWA Code of Practice which is a voluntary set of rules for providers of earned wage access across the UK. Created with the Chartered Institute of Payroll Professionals, the Code ensures that earned wage access products deliver the best outcome for employees.
As more organisations embrace this approach, the UK can expect to see positive outcomes not only for employees but for society, ushering in a new era of financial empowerment.
