Young Adults Using Alternative Lenders

Young Adults Using Alternative Lenders

Young adults from the ages of 21 to 34 are increasingly using alternative financial products, independent of their income level. This age group has traditionally been the most under-banked age bracket in the United States. It seems like the recession and tightened lending restrictions instituted by banks have forced young adults to turn to the ever-increasing alternative and short-term credit lending market.  

Over half of young adults who make less than $25,000 admitted to using a prepaid debit card in the last year, according to a survey conducted by Think Finance. Surprisingly, the same percentage of the highest income bracket ($50,000 - $75,000) also used prepaid debit cards. 

Similar numbers, hovering around 30%, of young adults also admitted to having utilized a check cashing service. Interestingly, the highest income bracket used payday loans much more than the lowest, dispelling the popular theory (at least regarding young adults) that payday lenders are a trap for the poor.

There are several factors at play that might explain why the newest generation of adults has a propensity for non-bank financial products. First and foremost, due to the recession many of these youngsters are on their own, their parents having taken financial losses and unable to lend them a hand. Secondly, while a college education was a signifier of the intellectual and financial elite twenty years ago, it is practically a requirement for anyone looking to earn a living in today’s economy. With the economy in disarray, students are shouldering the majority of the financial burden of their education. Finally, perhaps the most influential reason for why young adults are using alternative lending products, in an economy that is short on jobs, employers are choosing to hire applicants with experience, leaving many recent grads looking for work. 

This horrible cycle, combined with the fact that this is the first generation fully raised in the age of Internet and computer technology, are why so many young adults are looking to alternative financial products to help them manage their money.