Instant Financial has launched a new automatic payday application that lets users collect a portion of their bi-weekly paycheck daily if their employer opts into the plan. This application is targeted at, and used primarily by, the lowest income workers.
Advocates of payday apps argue the following: (1) workers gets to see an instant reward for their efforts, prompting them to work more since the reward of labor is more readily apparent; (2) if the worker has trouble living below their means, instant payment for labor is a better bridge than the short-term loan market; (3) the amount that workers can demand is limited to half of the paycheck, in an effort to reduce the likelihood that workers will reach into their rent funds; and (4) hey, workers are adults that should be permitted the autonomy to make decisions on their own behalf.
The story of the Instant Financial app instantly reminds me of the Samuel Johnson quote that “man can only be successful to the extent he is permitted to overcome his worst inclinations” and the Charlie Munger quote “I don’t want to sell credit to people who are going to hurt themselves with it. You should only sell products that are good for the people who use them. Some disagree with this, but I know I’m right.”
The rise of the Instant Financial app allows people to indulge their worst inclinations. The proximity of payment makes it easier for you to give in rather than resist the very thing that is not in your long-term best interest.
Being paid biweekly acts as a forced savings program of sorts and still gives you a sufficiently close relationship between your efforts and the fruits you receive. Half of what you receive on Friday covers what you did that very week; at worst, you might have to wait thirteen days for compensation.
When you’re talking about the need to reach money in a given paycheck, this is not a time value of money problem. This is a cash flow / living within your means problem. And if you cannot wait until next Friday to make a payment, your finances are not going to be any stronger by receiving an option to withdraw $30 or $40 from your account daily.
In interviews, Instant Financial has touted its application by pointing to the angry e-mails it has received when the app shut down and was unable to disburse the daily payment. That is awful, because it suggests that its customers have come to rely on daily payments to fund their life.
I don’t like it.
Every single path to success leads through delayed gratification. That is the one essential ingredient to improving your lot in life. I don’t know anyone who maximizes their consumption at every turn that also finds themselves in a better position over time from their own production.
The Instant Financial app replaces delayed gratification with instant convenience. It creates no inhibition barrier, and instead permits to grab what you can now.
I write this in an effort not to be naïve. I understand it can be difficult working with the low-end of the market. Often times, it is not about making the intelligent decision, but the least bad decision. But I can think of no other situation in life where the end result improved by smashing down the gates of self discipline. A dieter would not benefit from having a cheeseburger and pizza follow him on a plate all day. A phone app that lets you take out money from your paycheck daily will have the same obviously detrimental effect.