The CBC just posted a story of a Vancouver (and Montreal office) start-up called Instant Financial. The business model is that companies can sign up with them to allow their hourly workers to withdraw up to half of their pay immediately after their shift ends. Mr. Mikes and McDonalds have already signed up with them.

Work your shift and get up to half the pay immediately. The rest is on your normal paycheque. My first reaction was: OMG – no – please – what a horrible idea.

The company is positioning themselves between a lender and payday companies. Nothing in the article, or anything on the company web site talks about the fees. But I can assure you, they’ll be significant and frequent! Clearly this is for hourly workers and a big benefit to companies with large numbers of hourly staff. There’s no chance their payroll department is in the town or city the workers are, and there’s no chance they’ll do hundreds of $50 advance cheques for their workers. So for them, it’s a third-party handling all that work and they just deduct the amounts from the pay just like they do for any staff charges from meals to whatever.

For the individuals, it’s very tempting, but horrible idea. Sure, lots of hourly workers aren’t blessed with a lot of savings. The company’s sales pitch is that this way they can access money for emergencies or to buy necessities. But $30 or $40 isn’t changing anyone’s life – no way. A $10 an hour worker, after an 8 hour shift can take out $30 tops. It’s 50% of their net pay max. The perceived need for this money today will come at around $5 or $8 in fees and will put a huge dent into their real net pay. Then, they’ll be heading to a payday lender to make up the rest of it to pay rent, car payments, their cell bill or other bills. I’ve seen it over and over and this “today benefit” will turn into the tomorrow nightmare. You can see that even with higher income earners when 25% of early RRSP withdrawals are for “daily bills.”

I read this story an hour ago. Give me another hour and I bet I can come up with a dozen alternatives at no cost and no pain. Big picture, employers are fine with their staff being broke. It’s a great motivator to get them to come back to work next week and next month. For the quarter of (around) minimum wage workers that are still in school, they’re around 17 to 19 years old. They have no financial knowledge, and probably just as much discipline. That “today” advance will go for a trip to the mall or a pair of jeans – not necessities as the company wants to tell us.

For the rest of their target market, give me a group of the most broke, living hand to mouth people, and I bet I can turn their finances around within one or two pay periods. Can the most broke people start with an emergency savings account (see the Money Tools & Rules book page 222)? Of course. Can most broke people save $20 a month? Yes. So within a couple of months, they’ll have enough in emergency savings to avoid ever having to be tempted with this daily advance plan!

But companies don’t want that for their staff if the truth were known. But people need to decide: If they’re broke they can fix it, or compensate. This company helps with compensating and staying broke plan, but not fixing.