One of the things we talked a lot about off-air a couple of weeks was Activehours. Our panelists had a lot of questions for Ram Palaniappan, the founder of the company and our guest for the episode about cash flow.
What is Activehours?
First of all, our panelists wanted to know about the company. Palaniappan described Activehours as an ATM for pay. Instead of waiting until payday, you can log hours you are working each day, and then get an advance on your paycheck. When pay day does come around, Activehours collects from your bank account. Basically, Activehours can be used to smooth your cash flow.
In an on-demand world, this type of setup makes sense. A recent survey from YPulse discovered that 71 percent of millennials want access to instant pay. Basically, they want pay on-demand, rather than having to wait to be paid every two weeks, or once a month, or whatever the frequency is. They would rather be able to access their pay at any time, especially if they have already worked the hours.
Of course, the next question was this: How is your service different from a payday loan place? After all, this sounds a lot like a payday loan setup. You get your money now, and then on payday, the service takes the money from your bank.
Palaniappan said that Activehours is different from payday lenders in one very important way: The service doesn’t charge set fees or interest. Instead, Activehours accepts “tips” from users. Those who use the service can offer to pay whatever they think is reasonable for the service. So far, Palaniappan says, most of those who use Activehours leave a “tip” of $5 or $10 for use of the service.
In most cases, for most people, that sort small fee is much lower than any other fee they would pay. A number of millennials would like be willing to pay $5 or $10 in order to avoid a $35 or $45 late charge for overdrawing an account, or an outrageous interest rate that amounts to 300% APR for a payday loan.
Even as convenient as something like Activehours is, though, it’s better to set aside money for an emergency fund. That way you don’t feel as though you need to pay a fee at all. Plus, an emergency fund at least offers the chance to earn a return on your money (even if it is small).
Who Can Use Activehours?
Of course, Activehours isn’t available for everyone. It’s not available to those who work on salary, and it’s not available to the self-employed. You need to have an hourly job, and an electronic timecard.
For the most part, Activehours is best for those who work hourly, and who are paid every other week. The way that bi-weekly payments work often means that pay day isn’t always convenient to bill due dates that fall on the same day of each month.
It’s always best, of course, if you manage your cash flow so that you don’t have to use any of these types of services. However, if that’s not feasible, then something like Activehours can help smooth some of your cash flow issues. But, for the long term, it’s really not a replacement for good financial practices.
In the end, though, you still have to be careful. You don’t want any service like this to become a replacement for solid financial planning and saving up. It’s always better to look at your income and your expenses, pay attention to timing, and then do what you can to make sure that your cash flow is relatively smooth, without the outside help of any cash-on-demand service available. It’s all about moving away from these types of crutches and building long-term financial success.