Solving America’s Paycheck-To-Paycheck Problem

“We started this company to address one very specific problem: the 70 percent of Americans living paycheck to paycheck. That’s the secret shame of our country, and we don’t really want to talk about it because we, culturally, don’t like to talk about money; and we especially don’t want to talk about money problems.”

That’s Even CEO, Jon Schlossberg, whose company made headlines earlier this week when it was disclosed that Even’s platform is behind Walmart’s real-time pay program. Schlossberg told Karen Webster in an interview that living paycheck to paycheck is a condition that colors every decision a person makes, limits their options and forces choices that often dig an even deeper financial hole for them. American consumers pay nearly $100 billion a year in interest and fees for payday loans, overdraft and late fees because their cash flow isn’t sufficient to meet their needs at a particular time.

“This isn’t that people just don’t have the money to pay their bills in general, but that they are forced to make bad decisions because the money they have already earned by working is not available to them at the right time,” Schlossberg said.

It’s a problem the CEO said he built a company to solve.

Even’s platform offers both hourly and salaried workers a chance to even out their pay periods by giving them a chance to receive as much as half of their paycheck once they’ve earned it, once a pay period.

Putting the Right Guardrails in Place

The goal for Even, Schlossberg noted, is to give people the tools to manage their money. Even didn’t just design a system by which people can get access to their paycheck earlier, but a platform that comes with specific and entirely non-negotiable guardrails so that the people using it can improve their financial lives. It’s a product designed with input from researchers at Stanford University and input from third parties, including the Consumer Financial Protection Bureau (CFPB).

One of the guardrails is hard limits on how often users can get their money earlier — one pay advance per pay period. Paying people more frequently — daily, Schlossberg argued — doesn’t help break the paycheck-to-paycheck cycle but further entrenches people in a cycle that only accelerates the paycheck-to-paycheck lifestyle.

Users are also only able to access 50 percent of pay earned. Schlossberg said Even’s data shows that the most common cash flow problems people face are for things like $20 for diapers or $50 for school supplies. These small one-to-one cash infusions where a person is taking money from some point in the future and applying it to the now are the most common use cases for Even’s real-time pay program.

Schlossberg also noted that the system is not designed, at present, for situations where consumers need a lot of money, since letting consumers eat up too much of their next check trying to solve a present problem with future money is not actually helping people.

“If someone makes $1000 on average, and then they take out $600, that leaves them only $400 in their next pay cycle. They may have solved their present problem, but they’ve just kicked the bigger financial can down the road.”

But, Schlossberg said, though some hard limits are necessary, the most effective guardrails aren’t built out of limiting what people can do with their money. Instead, he noted, they’re built by expanding how much people know about their money.

The Power of Data

The most effective guardrails Even has, Schlossberg said, aren’t actually built around limiting customer behavior. They’re built around teaching customers that Instapay is one tool in an entire arsenal of services that Even provides to customers to help them get their financial lives under control — services like keeping a running tally of how much they have left to pay in bills that month, or how much free cash they actually have on hand to spend.

Giving people that kind of information lets them set their own guardrails inside their own minds and actually begin changing their habits, Schlossberg said. Developing those good habits becomes easier if the tools to help people become better money managers are built into their daily routines.

Even’s spent three years building the technology that helps users do just that. The average American, he said, already checks their bank account balance twice a day. Even piggybacks on that already habitual behavior with a new and more useful habit: checking a different balance that gives them access to much better information. When a user connects their bank account to Even, through the power of machine learning and neural networking, the information about income and bills paid is parsed into sensible data and provides prompts for helping its users save and spend responsibly.

More Than the Sum Oof Its Parts

Even still has “a lot more work to do” as it moves to help the nearly 70 percent of Americans who are living paycheck to paycheck. Among the priorities on the list, Schlossberg told Webster, is the future rollout of a different type of product to help their users who have a larger financial emergency that needs a larger infusion of funds than 50 percent of their next paycheck.

“The product we have now isn’t designed for that situation — but stay tuned, because obviously there does need to be a better option there than payday loans, and we think we’ve got one that we will be rolling out shortly.”

More broadly, Schlossberg noted, the company is also working to further develop “synergistic effects” of offering workers both access to automated budgeting tools and Instapay options to keep their cash flow smooth.

“It’s really when you combine those two aspects that you get a whole greater than the sum of its parts. Because the system can start to tell you how to use it better, we can proactively suggest an Instapay because our system can see an expense is going to hit you and you are going to run out of money. The system, in fact, will probably know that before the user does.”

And, of course, Even has an awfully big integration on its hands, with the 1.4 million Walmart employees that could be potentially entering the system. Use of the program is voluntary, he noted, but Walmart is paying the fee and making it available to any employee that wants to use it.

And, while he declined to release any specific numbers as it is still very early days, it looks so far like a lot of them will be using it.

“We are literally drowning in customers right now,” Schlossberg admitted. “This is a great problem to have, of course. But we modeled this beforehand, and what we are seeing so far is the hyper-enthusiastic model that we all laughed at the time was never going to happen. The joke’s on us, I guess, but in the best possible way.”