Gen Z and "Buy Now, Pay Later" services

Boose

Boose

Recycles dryer sheets
Joined
Apr 19, 2011
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New Hampshire
Read this article on consumer loan companies like Klarna, Affinity, etc. which offer online point-of-sale loans, principally to consumers who are too young or too poor to have credit cards. This hadn't crossed my radar until I was buying masks online in the early days of the pandemic and noticed the "pay in 4 monthly installments!" verbiage. I hope this is a trend that withers on the vine, or Gen Zers will also be unable to retire or buy a house (as Millennials claim).
 
Yeah, those plans scare me. It reminds me of EZ-Pay on the home shopping channels. Buy too many things and your monthly obligations are no longer "EZ". It's my understanding that if you make the payments on time there are no finance charges- so who's footing the bill for the float and defaults? Baked into the price even for those of us who pay up front? And will this become less attractive to merchants as interest rates rise?
 
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Saw the same article. Had no idea this was a thing (I'm not on TikTok or social media). Scary. Sounds like the judiciary and consumer protection agencies may soon intervene, rightfully so.
 
pdxgal said:
Saw the same article. Had no idea this was a thing (I'm not on TikTok or social media). Scary. Sounds like the judiciary and consumer protection agencies may soon intervene, rightfully so.
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I found out about it on a BBC podcast on the subject and, like the OP, occasionally get presented with that as an option when I buy on-line.

Not sure if laws are the answer on this- heck, it's a lot better deal than rent-to-own and that's legal. As with credit cards, it's an option that's good to have if it's used wisely but can get you into big trouble if you overdo it.
 
Block Inc (aka Square) bought some sort of Australian or NZ buy-now-pay-later company and is working to integrate it into their product line like Cash App. Giving them the rope and teaching them to tie the noose?
 
I don't see this as bad, they can get an interest free loan by doing installments. Invest the pending and get 2 or 3 percent, seems like a win. Sure it can be dangerous but it doesn't have to be unless you make it that way. So they need to be saved from themselves now? Adulting is hard I guess.
 
Yeah, I’ve made many “same as cash” purchases and also used Bill Me Later (aka Paypal Credit) for many years before these new guys came along. I always assumed my free ride was courtesy of the folks that fell into the high interest provisions.
 
jim584672 said:
I don't see this as bad, they can get an interest free loan by doing installments. Invest the pending and get 2 or 3 percent, seems like a win. Sure it can be dangerous but it doesn't have to be unless you make it that way. So they need to be saved from themselves now? Adulting is hard I guess.
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Easy credit to the uncreditworthy is often a disaster. On paper "invest the pending and get 2 to 3 percent" sounds good, but let's be honest: No one is doing that.

I'm all for people have options, but we are often our own worst enemy. I remember when I was a teenager (and good with money!) having a credit card and always paying it off...until I wanted a $200 amp for my car. I knew buying it that I'd need a little more than a month to pay it off. About 10 years later I finally cleared all my credit card debt. Again, I like options, but some will just be tools for people to dig themselves into a hole faster.
 
Meh. This isn’t a gen Z problem, it’s a consumer problem. And given no finance charges on the installment payments, I don’t really see an issue with it. Way better than kids/adults racking up big cc debt at high interest rates like I did.
 
We are inundated with numerous TV commercials that promote either getting the IRS to reduce what you owe that you failed to pay for a number of years OR commercials that promote negotiating to lower your credit debt because you're over extended. This really wads my shorts in a bunch and I feel only exacerbates the problem mindset of many people.

Cheers!
 
I noticed these a couple money ago when I was buy meat online. I noticed I could put a chicken on credit. It was an expensive chicken but still you could pay for several months for a chicken..
 
arcyallen said:
Easy credit to the uncreditworthy is often a disaster. On paper "invest the pending and get 2 to 3 percent" sounds good, but let's be honest: No one is doing that.
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My late DH used to tell me that the reason Figi's, a mail-order firm, went out of business, was that they had too many uncollectible debts from the customers who were given free "pay-later" plans.

And these days I'm not sure where I'd be able to invest at 2 or 3% without some risk!
 
How are these plans any different from giving “EZ Credit” with a credit card. I’m asking because I don’t know. It seems like the risk could be similar (i.e. is this really new?).
 
Usually those multi payment deals are backed by a credit card they can debit automatically.

I have a buddy that's a venture capitalist. He's been part owner in a big furniture/appliance rental operation for the last 25 years. It's such a cash cow that they've never dressed the company up and sold it off. Been a big ROE to him.
 
90 days same as cash is how I established credit 50 years ago. If anyone wants to address a real "problem" I would vote for Pay-Day loans but YMMV.
 
Most people want instant gratification. Its rare for people to save up money and pay cash for something in full. I want shiny new things NOW!!!
 
ponyboy said:
Most people want instant gratification. Its rare for people to save up money and pay cash for something in full. I want shiny new things NOW!!!
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I believe more than $2T in US personal savings accounts conveys a different message.
 
ponyboy said:
Most people want instant gratification. Its rare for people to save up money and pay cash for something in full. I want shiny new things NOW!!!
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MichaelB said:
I believe more than $2T in US personal savings accounts conveys a different message.
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IIRC personal credit card debt is a bit less than half the personal saving number (sorry, no source.) Of course, some folks have savings and CC debt, so there's that.

I have no idea what % of folks behave as ponyboy suggests and how many behave as MichaelB suggests. I DO know personally several folks that would suggest ponyboy may be more correct than not. My BFF that is $500K in debt at 77 is exhibit one. He has never been able to wait for gratification. I've often counseled him that simply saving up FIRST would actually allow him to own many MORE things since he would not have to pay interest (and might even earn a bit of interest.) He agreed, but never did it. YMMV
 
So tired of clickbait about which generation is worst at X, Y, or Z. We all go through similar stages of learning how to deal with life, are tempted by different things at different times, etc.

When I first encountered "free credit" in my 30's, I almost turned it down because I thought there had to be some catch (well there is: you have to pay on time). But the terms were clear: Make your monthly payments and you'll pay no interest. Miss a payment, and gotcha!

Worked for me. We bought furniture and even some jewelry that way.
 
Koolau said:
IIRC personal credit card debt is a bit less than half the personal saving number (sorry, no source.) Of course, some folks have savings and CC debt, so there's that.

I have no idea what % of folks behave as ponyboy suggests and how many behave as MichaelB suggests. I DO know personally several folks that would suggest ponyboy may be more correct than not. My BFF that is $500K in debt at 77 is exhibit one. He has never been able to wait for gratification. I've often counseled him that simply saving up FIRST would actually allow him to own many MORE things since he would not have to pay interest (and might even earn a bit of interest.) He agreed, but never did it. YMMV
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Personal anecdotes may influence one’s views but hard data is critical, and quite useful. Federal Reserve data show US household balance sheets improved substantially from 2019 to 2021. As pandemic related economic concerns rose people reacted by decreasing consumption and increasing savings. Transfers from gov’t added to savings. See here https://www.federalreserve.gov/releases/z1/dataviz/z1/balance_sheet/chart/

According to the NY Fed quarterly survey on household dept, credit card balances declined in 1Q and are still below their peak in 2019. https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/hhdc_2022q1.pdf
Balances
Mortgage balances shown on consumer credit reports increased by $250 billion during the first quarter of 2022 and stood at $11.18 trillion at the end of March. Balances on home equity lines of credit (HELOC) were relatively flat and have been for the past 3 quarters, bucking a declining trend in place since 2016Q4; the outstanding HELOC balance stands at $317 billion. Credit card balances declined by $15 billion, a typical seasonal change. Credit card balances had declined significantly in the first year of the pandemic and remain $86 billion lower than at the end of 2019. Auto loan balances increased by $11 billion in the first quarter. Student loan balances now stand at $1.59 trillion, and increased by $14 billion in the first quarter of 2022. In total, non-housing balances grew by $17 billion, boosted additionally by a $7 billion increase in other balances, which include consumer finance loans, retail cards, and unclassified loans.
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The household debt to GDP ratio has increased over its 2019 low, but still shows a consistent and substantial decline over the past 10 years https://fred.stlouisfed.org/series/HDTGPDUSQ163N

Anyone interested in more detail wil find a treasure trove of data at the different Federal Reserve Banks, and here is pretty good and easy to read analysis by Brookings Institute https://www.brookings.edu/research/bolstered-balance-sheets-assessing-household-finances-since-2019/

The data show US household finances have been on a steady path of improvement since the GFC. Savings are healthy and increases in mortgage debt have been mostly taken in by households with high credit worthiness.
 
Those plans are worrisome.

Not just to Generation Z either.

Just take a look a the consumer credit numbers by demographic-specifically the 45-65 demographic. It is very revealing.

When we first got married every stick of furniture we had was either hand me down or second/third hand.

SIL got married at the same time. Everything brand new, purchased on consumer credit. Three years later they were bankrupt and blamed it on their credit card issuers and consumer finance loans. Go figure.

We retired at 58/59, financially independent. She is still working in her late sixties, operating two vehicles, and depends on reverse mortgage to remain in their home.

This is not a new story. Just a different way to hook people into the consumer credit trap.
 
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I find interesting the way some people will turn up their noses at anything not flashy and new (even if it's not the highest quality), while others will ooh and aah over good, older furniture and restored items.

It's as if having good taste can help determine your financial future.
 
thefist said:
Quote:
Originally Posted by athena53 View Post
And these days I'm not sure where I'd be able to invest at 2 or 3% without some risk!
US Treasuries.
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The federal debt-to-revenue ratio is 7.6x, meaning it would take the government over 7 and a half years to pay off its existing debt, if 100% of revenue went to servicing the debt.

With that in mind, it's very debatable whether Treasuries are truly risk-free.
 
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