PocketSmith asked for my opinion on Buy Now Pay Later schemes, and what initially felt like an easy conversation got much more fraught.
What’s the problem?
I’m always open to new ideas, inventions, and concepts and love finding new ways to do old things. I honestly am. But I’m afraid that Buy Now Pay Later (BNPL) is just a non-starter for me personally. In my opinion, they have made a simple thing like going shopping far more complicated than is necessary.
I recently watched a show where a diabetic woman was taste-testing soft drinks to find the perfect fizzy drink that wouldn’t send her insulin levels sky-high but would also quench her thirst. There was a whole segment on the show about how she could avoid being thirsty, for goodness sake! I thought to myself, why doesn’t she just drink water?
Stick with me. There is a point to this.
My opinion of the multitude of Buy Now Pay Later offerings elicits the same logical response. If you are buying an $80 jumper spread over four $20 weekly payments, why not just save up $20 a week for four weeks and then buy the jumper?
Do you and I even need BNPL?
No, in my opinion, we don’t.
When it comes to using, or not using, a financial product that promises to make my life easier, I often think, “what would Granny say?” What would a person over the age of 70 have to say about what to drink if you were truly thirsty? They would say, “drink a glass of water”.
And if their grandchild said to them, “Granny, I’ve found the perfect sweatshirt; it’s $80. I’m going to buy it today and pay it off over the next four weeks at $20 a week”. Granny would say, “Borrowing money to buy a sweatshirt? Sheesh, are you kidding me?”
I’m with Granny on this one.
Since the concept of debt was invented, inventors have been trying to work out how to get more people to go into debt. BNPL is just a new form of debt.
The marketing department of every BNPL scheme is working overtime to make you feel that slicing a payment up into smaller pieces gives you a greater sense of freedom and control. Don’t get me wrong; these are two of my favorite attributes.
But from where I am, sitting on the sidelines of watching how others handle their money, BNPL gives them anything but freedom and control over their spending. Instead, I watch people complicate their financial life by slicing up so many things into ‘easy payments’ that they lose track of where their money went. Their bank account looks more like a bucket full of holes, and as they pour a paycheque in the top, it dribbles out in all directions from the bottom.
I won’t go into how these BNPL companies work because this has been covered beautifully by many personal finance writers.
I will say that little by little, these ‘easy payments’ that you find yourself paying do add up to bigger and bigger outgoings from your bank account. Every time you use BNPL, you are pre-committing your future income for something you may have even forgotten you have purchased, for something you no longer use or wear but are still paying for.
If you want that control and freedom over your money, you can do that all in-house, all within your banking app. I’d encourage you to look back at 12 weeks of banking transactions and add up all the money that left your account in “four easy payments”. Divide it by 12, giving you a weekly amount. This is the amount you can now budget with, so you can save up and pay cash for your purchase. Open up another bank account and move that amount in every Monday morning and let it build.
Next time you visit your Granny, and she comments on the new sweater you are wearing, say, “Cheers for that, Granny, I saved up and paid cash for it”.
She might reply, Yep, that seems like an obvious way to buy things, sweetheart”. Grannies are very good at pointing out the obvious.
Ruth blogs at thehappysaver.com all about how she and her family handle money. What’s the secret? Spend less than you earn, invest the difference, avoid debt and budget each dollar that flows through your hands. She firmly believes that if you can just get the basics right, life becomes easier from there on in.