By Brenda Weathers Hargroves
More people are turning to installment plans to make every-day purchases. Research data shows during 2021, US consumers spent more than $20 billion with companies that offer installment payment services. Last September, Credit Karma reported 1/3 of the ‘buy now, pay later’ (BNPL) consumers are behind in their payments and more than 70% experienced lower credit scores as a result. This trend is particularly prevalent among Gen Z.
Joshua Bote’s May 2022 article reported the number of Gen Z consumers who take advantage of these types of services has increased 925% since January 2020.
When broken down by generation, another Credit Karma survey reported more than half of the responders who missed at least one payment were Gen Z or millennials. Twenty-two percent (22%) were Gen X and around 10% were Baby Boomers.
The survey also found 1) the average amount of BNPL purchases was, on average, $500 or less and 2) lower-cost purchases ($100 or less) were highest among Gen Z consumers.
TikTok seems to be a major promoter of BNPL, also known as short-term loans. Many influencers are promoting the idea of owning whatever you want, whether you can pay for it or not. Four easy payments have become the latest craze. Sadly, only a few influencers advise against getting caught in this trap of glamorizing the accumulation of debt. And what’s worse? Online shopping retailers promote this quick fix. I recently purchased a Jet Blue airline ticket and noticed they, too, offered the ability to pay travel expenses in installments.
What does all of this tell you? It tells me that normalizing debt has become a genuine threat to the financial futures of our younger generations. NOT GOOD!
Efforts to make life easier for our children, coupled with social media and technology, have made instant gratification far too desirable and accessible. No one wants to wait for anything. The line between buying something and actually paying for it has become blurred.
I can understand owning big-ticket items like a car or home requires taking out a loan (And even with that, a recent NBC news report stated Gen Z and millennials are currently defaulting on car loans at a higher rate). But I firmly believe payment for smaller expenses should be handled differently. And it all stems from having a budget with goals. That’s right! I can’t say this enough. You Need A Budget. Period.
Before making a purchase, one should consider whether the desired item is a need or a want. It’s perfectly OK if it’s a want. We all have wants and budgeting is not all about sacrifice. But that want should be included as an expense item on your budget. And you should consider if getting it helps you reach a goal. It’s so much easier to manage your budget when you’ve already accounted for a $100 expense rather than it suddenly appearing because of an impulsive BNPL purchase.
Granted, personal finance management is not easy. And it requires discipline. The good thing is successful budgets should not be thought of as written in stone. They should be flexible, but always with end goals in mind. And most important, a major component for success is not taking on more debt than you can handle. Plan your purchases so that you can pay for them when you buy them. The only ‘buy now, pay later’ arrangement you should consider is what we used to call layaway. You don’t get the item until you pay for it. And it should be called ‘buy now, pay later, get later.’
I conclude with the following words of wisdom: “Too many spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.”
Please tell me this does not apply to you.
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