For someone working at a minimum wage job, an unexpected expense–like a repair bill when the car they need to use to get to work breaks down–can be a crisis: only a small fraction of low-wage workers have at least $500 in savings. In the event of unforeseen expenses, many people turn to payday loans that can charge as much as 300% in annual interest.
An app from a new startup called Onward is designed to help low-wage workers steadily save, and also offers a line of credit with relatively low interest rates if someone needs a little extra in an emergency.
Onward partners with employers to help workers save through small deductions directly from each paycheck. Workers set a savings target through an app–perhaps $5 or $10 per check for an initial goal of a few hundred dollars–and then watch the total automatically grow over time. Once someone has participated for three months, they become eligible for a small loan, with no credit check required, if an emergency comes up. (The loan can be no more than twice the amount that the worker has saved, up to a maximum loan of $1,000 if someone has saved $500.) When they repay the loan, they can build a credit history.
Founder Ronnie Washington saw his uncle, a grocery-store worker who carefully set money aside from his six-day-a-week job, scramble for help when he had a car repair bill he couldn’t afford. Washington, a consultant for Deloitte at the time, was able to step in. “I was there for my uncle, but I wondered, what do all these other folks do who don’t have friends or family that could support them?”
“Folks were hard workers, going to work every day, sometimes working multiple jobs, trying to set money aside, but still seeing their savings washed away, and not having enough and ending up at the door of some predatory lenders,” he says. “I just felt like I needed to do something about it.”
The startup is currently piloting the program with a manufacturer in Kansas City and a local credit union that offers the loans. After nine months, everyone who signed up is still enrolled in the program. “We’re serving folks earning minimum wage or just above that, folks who thought they couldn’t save are actually saving,” says Washington. “Nearly half of Americans can’t come up with $400. The people that are in our program have already reached that if not surpassed it, without even thinking about it.”