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Why are Payday Advances Bad for Your Employees?

What would you say if we told you your employees are in financial trouble? And not just “a day late and a dollar short” trouble. We’re talking about “don’t know which bills to pay and which ones to ignore this month” trouble. And being unable to cover them all because of mounting debt is the kind of strain that keeps them awake at night. If you’re like most employers, you’d want to find a way to help them!

Well studies show that money stress isn’t just a theory—the struggle is real. And your own conversations with workers likely confirm it, too. As you look for the right financial wellness solution for your employees, there’s a sea of options. But while some are better than others, many are downright harmful!

One approach we aren’t thrilled about is offering workers payday advances or low-interest loans. This is a really bad idea that not only fails to help workers, but also causes harm in several ways. Let’s see why.

How Do Payday Advances Work as an Employee Benefit?

In a word, they don’t! As financial flexibility has picked up steam in the benefits world, some employers are being fooled into thinking that they should aim low with their financial wellness benefits. Instead of helping employees learn to budget, get out of debt and save, financial flexibility teaches them to be satisfied with just getting by. Why? Because new habits are (supposedly) too hard to form, while staying in the same patterns feels more comfortable.

But who’s being helped by staying comfortable? Especially when “comfortable” means living paycheck to paycheck and always being one bad day away from a financial disaster—which is how most employees live! This is not financial wellness! And any benefit that reinforces bad behavior shouldn’t go by that name!

That’s why offering payday advances or loans to employees bugs us so much. If you start a financial wellness program believing that behavior change is too hard to achieve (hint: it’s not), then it might make sense to think the employee’s real problem is an issue of timing. So why not give employees low-interest loans? And why not grant instant or early access to their pay instead of making them wait the usual two weeks?

To go even further with this misguided thinking, you could say that advances and loans will help workers. After all, having funds sooner should help them pay their bills on time, dodge late fees, and even avoid paying much higher interest rates to a payday loan provider.

All of those may sound like good reasons to offer loans or advances, but none of them hold up in practice. As we’ll see, the heart of real financial wellness is behavior change—not helping employees get comfortable with the very behaviors that are messing up their money!

Payday Advances Have Fees

This isn’t even the main problem with pay advances as a benefit, but it’s one worth noting: There’s a fee to use them! And someone is going to be paying it. It could be you, the employer. But more often it’s the employees themselves who end up footing the bill. Either way, how is this helping anyone’s financial wellness? If you have to pay a fee to get your money, you’re being penalized for the so-called service. This is just dumb.

Debt Is Not Financial Wellness

What about this whole idea of letting employees borrow money as a stopgap to get through a tight financial spot? Let’s be real clear: It’s insane. You simply cannot borrow your way out of money problems. And debt is never a good move. Instead of helping employees, it will harm them and their financial futures. Even if their intention is to make it a rare move that they pay back as soon as possible, the truth is that it will only cement all their other bad habits into place: They still won’t budget, they won’t begin to save, and they’ll stay in debt longer than they might have if you’d focused on behavior change from the get-go.

Advances and Loans Reinforce Bad Money Behaviors

Which gets us to the main problem with the whole financial flexibility movement: It tries to numb the pain of serious financial dysfunction in the same way a dentist numbs a rotten tooth. Except that a good dentist will finish the job by removing the decay and helping the tooth to heal. But what if the dentist’s whole solution to cavities was to give patients a never-ending supply of anesthesia, while never drilling away the damage? Patients might feel better for a while, but the long-term results would be ugly if not deadly. That’s essentially what financial flexibility pushes—numbing the patient with temporary fixes and ignoring the underlying problem.


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A “this-time-only” loan or having access to funds a little early does not add up to real financial wellness. And it never will! Why not? Because it does nothing to help employees truly understand that the problem lies in their own long-standing bad habits with money. What they actually need more than anything is someone who can inspire them to change how they handle money and connect the dots between better habits and wealthier outcomes.

How Behavior Change Is Helping This Employee and Millions of Others Win

Across America millions of employees in thousands of companies are discovering the life-changing benefits of real and lasting financial behavior change!

To choose one example, let’s meet Sherry, a worker with Royal Technology. Before her company launched SmartDollar, Sherry was in financial trouble that included relying on payday advance services.

“I was dealing with cash advance places and not being able to get out of those,” Sherry recalls. “I was in it for three years. And I was frustrated with the bills that I had.”

But let’s jump to the part of the story where Sherry learned some new habits and started feeling some hope!

“My husband and I paid off $15,000 in debt in four and a half months! It feels like a huge weight off my shoulders! And I will never live paycheck to paycheck again. Never.”

That’s the kind of real financial wellness we’re talking about: getting out of debt, feeling the burden of those old habits roll away, and having a strong resolve about the future!

Want to learn more about how you can help employees build awesome money habits? Of course you do! Get the Financial Wellness Toolkit today!

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Ramsey Solutions

About the author


Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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