Young Australians are ditching their plastic cards for seemingly less harmful buy now, pay later services. These services go by many names – Afterpay, ZipPay, and more – but they’re all the same red lipstick on a fat piggy.
Buy now, pay later services allow users to buy almost anything, paying it off in timely installments. Like a reverse lay-buy.
Though a recent concept, the growth of Afterpay and its countless competitors is exponential. Australians aged 25-34 makeup 56% of all buy now, pay later services and this number is growing.
44% of buy now pay later users make less than $40,000 annually, with majority of these low-earners either studying or working part-time, according to a 2018 ASIC review.
These trendy services are even gradually replacing credit cards. Nowadays, only 41% of young Aussies own credit cards – a 17% drop from 2002. While everyone knows credit cards are the devil, people don’t realise the potential consequences of using these services. Especially young Australians.
Mortgage Choice chief executive Susan Mitchell warns potential first-home buyers to “Stay away from buy now pay later services.”
Like a credit card limit, an Afterpay limit is considered when applying for a morgage. People deciding whether or not to lend someone money may scrutinise this excessive spending, dismissing potential applicants.
Even worse, most people don’t realise Afterpay is consumer credit. These companies have simply wrapped a pretty ribbon around consumer credit and aimed their products at the masses.
While AfterPay claims it is committed to ‘responsible’ lending because it encourages customers to ‘take it slowly’, moral support can only go so far when it comes to responsible spending.
Buy now, pay later companies provide people with a form of credit. Still, the government doesn’t consider consider them credit providers. Because of this loophole, consumers are being approved for credit without undergoing credit checks typically required by banks and other lenders.
So low income earners and students – those most likely to have low financial literacy – are being approved for buy now, pay later services they now little about. The perfect storm.
Financial blogger Scott Pape (The Barefoot Investor) argues AfterPay is the ‘gateway drug’ of consumer credit, encouraging young people to spend what they cannot afford.
And he’s right. People using buy now, pay later are more likely to buy unnecessary items, increasing their short-term debt and ultimately depleting their savings. But unless Australians understand the consequences of using these services, they will keep putting fuel on their financial fires now and feel the burns, later.
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Do you use buy now, pay later services? Do you think they encourage you to spend responsibility? Comment below!
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