Four in 10 young people don't see 'buy now, pay later' as debt

Recent research reveals that a majority of young New Zealand adults do not perceive "buy now, pay later" schemes as debt. This marketing strategy, employed by services like Afterpay, Klarna and Zip, may mislead consumers into believing the product is safer or less risky than traditional borrowing. The study found that 40% of respondents did not view these schemes as debt, while nearly half believed they carried fewer consequences than other forms of borrowing.

The research further uncovered that younger consumers who did not recognize "buy now, pay later" as debt were more likely to use other forms of credit to meet repayments. Additionally, 55% of users incurred late penalties, with nearly 13% experiencing this issue multiple times. This suggests that the misperception of the product as debt may be contributing to financial difficulties among young adults.

Interestingly, those who perceived themselves as more financially literate were more likely to use other forms of debt to manage repayments. However, those who recognized the product's higher costs or risks used it less frequently. This highlights the need for better financial education that helps consumers understand the underlying financial relationships, regardless of the product's name or technology.

Despite the changes in legal treatment of "buy now, pay later" schemes in September 2024, consumers continue to perceive the product differently. The study suggests that financial education should focus on teaching consumers how to recognize the obligations and risks associated with any form of borrowing, rather than merely providing knowledge about traditional financial products.