Yahoo Finance ‘That’s kinda stupid’: This YouTuber was stunned by a woman whose $80 payday loan has a 260% interest rate — 'What are you doing?' he asked her before dispensing some tough advice
Talk about unrealistic expectations! Summer, 27, from Dallas, Texas, recently told finance YouTuber Caleb Hammer she was aiming for early retirement. “I want to retire before [65],” she told Hammer on a recent episode of Financial Audit.
There’s just two challenges — a collection of expensive debt and bad spending habits.
Don’t miss
This Pennsylvania trio bought a $100K abandoned school and turned it into a 31-unit apartment building — how to invest in real estate without all the heavy lifting
Find out how to save up to $820 annually on car insurance and get the best rates possible
Finish 2023 stronger than you started: 5 money moves you should make before the end of the year
Summer spends $440 per month on a personal trainer, $1,200 per month on baby food for her two-year-old (which is split with her boyfriend) and has several payday loans for small amounts with interest rates as high as 260%. She also has credit card bills she’s struggling to pay on time.
Here’s how Summer’s spending habits are making her early retirement a distant dream.
Payday nightmare
An overreliance on quick cash borrowings is sinking Summer’s finances. “Honestly I've probably taken out like every payday loan possible,” she admits.
Her latest payday loan, for $80, was to cover expenses that emerged shortly after her relocation. “After moving, man, I got really broke,” she said.
Summer isn’t alone. At least 12 million Americans take out payday loans every year, according to data published by the Consumer Financial Protection Bureau (CFPB) in 2022. Payday lending is allowed in only 26 states, and 16 of them require lenders to offer no-cost extended payment plans.
These loans usually have aggressive payment schedules and extremely high interest rates. Summer’s $80 loan, for instance, has an annual rate of 260.37%.
“What are you doing?” Hammer asks. “You know you paid $20 to borrow $80, right? So you’re giving them a hundred bucks.”
“That’s kinda stupid, yeah,” Summer concedes. Unfortunately, high-interest debt is only part of the problem. Her financial situation is worsened by bad spending habits.
Read more: Thanks to Jeff Bezos, you can now cash in on prime real estate — without the headache of being a landlord. Here's how
What budget?
Summer earns $3,518 in base salary and between $200 to $1,000 in bonuses every month. Some costs, such as rent, are split with her boyfriend, who is also earning a steady income of roughly $80,000 a year, according to her.
The couple earns well-above average, even in Texas where the median family income is $73,035, according to U.S. Census data. They shouldn’t need to rely on payday loans to survive. However, Summer tends to spend beyond her budget in most months, which is why she’s used quick fixes to plug the gap.
Some items on her monthly budget seem higher than average. Take, for example, the $1,200 she and her boyfriend spend a month on baby food. According to babycenter.com and the USDA, costs can be as little as $155 to $800 a month.
Meanwhile, in her recent bank statement, 42% of expenses were dedicated to shopping for “other large purchases” that were non-essential goods.
“You’re choosing basically five bulls--t purchases a day over you being able to retire,” Hammer says. Cutting back on any of these expenses, he believes, could free up more cash to avoid payday loans entirely. It could also give Summer an opportunity to start investing for her future.
Overspending isn’t unusual. A recent poll from The Associated Press-NORC Center for Public Affairs Research found that two-thirds of American households had raised their spending over the past year, even though only a fourth had seen their income rise over the same period. Despite rising inflation and higher interest rates, consumers are spending more.
Surveys suggest younger consumers, like Summer, are more likely to give into this temptation to consume despite financial challenges. Intuit’s Prosperity Index study found that 73% of Gen Z Americans were so worried about the current economy that they hesitate to set long-term goals (compared to 63% of the general population).
Meanwhile, 66% of Gen Z is unsure about ever having enough money to retire (compared to 58% of the general population).
Doom-spending could be the younger generation’s response to an economy that looks gloomy over the long term.
What to read next
Millions of Americans are in massive debt in the face of rising rates. Here's how to get your head above water ASAP
Rising prices are throwing off Americans' retirement plans — here’s how to get your savings back on track
The US dollar has lost 87% of its purchasing power since 1971 — invest in this stable asset before you lose your retirement fund
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
