Hot Tip

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I was appointed the finance correspondent for Senior Life Advisor, an online magazine for investors near or in retirement.  The articles for Senior Life Advisor were designed to offer actionable information as well as items of interest about economics, investing and personal finance.

There are a number of “disruptive” fintech apps that enable consumers to get an advance on their paycheck, in some cases for free.  If you are working and need an advance, they are worth looking into.  

And just to make sure that we are not leading our readers astray, Senior Life Advisor spoke with one of these, earnin.com, to see what the story is  This company’s pitch is that you can borrow against your upcoming paycheck, and when it comes time to pay the loan back,  you can leave a “tip” based on what you think it’s worth, or leave nothing at all.  

According to Earnin’s RJ Bardsley, it’s no more complicated than that.  Even though a free loan seems to trigger the “if it seems too good to be true . . .” warning, the service seems to be consistent with the company mission “fighting unfairness in the financial system.”

Another helpful service offered by Earnin is access to health aids to negotiate and help you sort out your medical bills.  Again, leave a tip if you want.  

The existence of Earnin might offer an example of how technology can solve problems and lower costs.  After all, the leave a tip if you want approach takes direct aim at payday lenders, who regularly charge borrowers rates in excess of 500% to get an advance on their pay.  

But doing good, if profitably structured, can also be profitable too.  The this must be true because Earnin is backed by venture capitalists including Andresen Horowitz who was behind Facebook, Instagram, Lyft and others, and they don’t make investments to lose money.    To wit, if you leave a tip of $5 for $100 for a two week advance, the annual interest rate of that tip is 120%  ($5/$100 = 5% for half a month’s interest x 24 half month periods in a year = 120%).   Even a $1.00 tip on $100 earns a 24% annualized yield.  With the cost of debt as measured by the 10 year Treasury note yield at 1.8% — near historical lows —  the spread that can be earned on Earnin’s payday advances, even taking into account those who leave nothing, could be spectacular.  Of course getting an advance for nothing is spectacular too, and for this Earnin is to be admired.