When an unexpected cost comes along, those who may not qualify for traditional financing may turn to payday loans to get the money they need. While these types of cash advances can seem attractive, they are often disastrous for borrowers who end up paying exorbitant amounts of interest and driving themselves deeper into debt. In fact, the average interest rate for a payday loan is 391 percent, according to CBS News.
However, despite that fact, these loans remain popular and it seems that millennials in particular are turning to them in increasingly larger numbers, reports PBS News Hour. A recent survey found that this true for young people as well, as 42 percent of millennials had used such a service, and 34 percent had specifically used pawnshops or taken out a payday loan.
One reason that millennials may be looking to such sources for cash is the extensive amount of student debt many of them are facing. It was reported that student-loan debt averaged more than $28,000 per person for 70 percent of college graduates in 2013. In addition, many millennials do not have the credit history that many banks and lenders require in order to qualify for traditional loans.
Perhaps the biggest cause driving millennials to seek out payday loans is their ignorance when it comes to personal finance. Since most states do not require this topic to be taught in schools, many young people simply lack knowledge about how loans and interest rates work. In fact, one study found that rudimentary knowledge about finances was only demonstrated by 24 percent of millennials. Therefore, increasing educational opportunities for young people about personal finance may help stop them from seeking detrimental payday loans.