‘Buy now, pay later’ doesn’t feel like debt. For young people, that can be a big problem
A survey of young New Zealanders finds four in ten didn’t view buy now, pay later as debt. That perception can influence how they use it.
The marketing of "buy now, pay later" schemes like Afterpay, Klarna and Zip has caused confusion among young consumers regarding their perception of debt. Although these schemes often appear as a convenient way to make purchases, they are fundamentally a form of debt. The appeal of these products, particularly for younger consumers who are wary of traditional credit cards, lies in their speed of approval and easy checkout process, which can lead to overspending and mounting debt.
A recent study explored whether the product's label, as a non-debt form of payment, affects how people use it. The results indicated that approximately 40% of young New Zealand adults did not view buy now, pay later as debt, while nearly half believed it carried fewer consequences than other forms of borrowing. Among those who used the product, 43% had also utilized conventional credit methods such as credit cards to meet repayments, and 55% incurred late fees, with nearly one in eight experiencing this issue three or more times.
Interestingly, financial literacy appeared to have mixed effects. Those who had received financial education were less likely to recognize buy now, pay later as debt, while individuals with higher financial capability were more likely to use other forms of debt to cover repayments. Surprisingly, those who borrowed elsewhere to make repayments were less likely to incur late fees, possibly because they recognized the immediate cost of missed payments and managed the risk by shifting the debt elsewhere.
The study suggests that financial education should focus on teaching consumers how to apply their existing knowledge of financial products to new forms of technology. As financial products evolve rapidly, educators cannot realistically explain every new product; instead, they need to teach consumers how to "look through the label" and understand the underlying financial obligations and risks, regardless of the product's name or technology.
This approach is crucial for promoting responsible financial behavior and preventing consumers from falling into debt by another name.
Written by urgent.news from The Conversation AU's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
