Dan­gers of buy now, pay later

Kapi-Mana News - - CONVERSATIONS - ROB STOCK MONEY MAT­TERS rob.stock@fair­fax­me­dia.co.nz

Give a man a fish, and you feed him for a day.

Teach him to fish, and you feed him for a life­time.

Hang on. No-one’s got time for all that teach­ing these days, and it’s so un­prof­itable!

Why not just give the man a ‘‘buy now, pay later’’ loan?

He gets his fish to­day, and a needy busi­ness­man gets to earn a mar­gin off his in­come to­mor­row. Win-win.

Buy now, pay later mech­a­nisms are once again ex­pand­ing, and I’m not cel­e­brat­ing.

In re­cent weeks there’s been a surge in new forms of buy now, pay later debt.

It’s the likes of After­pay, Ox­i­pay, Lay­buy and PartPay.

They are all ba­si­cally the same ser­vice.

They let con­sumers buy some­thing now, and pay the money back in a num­ber of fu­ture in­stal­ments.

There’s no in­ter­est to pay, but make no mis­take: this is debt.


Stay in the black Avoid the red Make sav­ing nor­mal

First of all, shop­pers who miss pay­ments have fees to pay.

Sec­ond, fail­ure to pay can have a credit-rat­ing ef­fect.

Third, not pay­ing may bring the debt col­lec­tors round.

And just be­cause there’s no in­ter­est to pay does not mean this is cost-free.

Shops just build the costs of these buy now, pay later ar­range­ments into their prices, so shop­pers re­ally do get to pay more.

It’s al­most im­pos­si­ble to live with­out buy now, pay later loans.

It’s how we buy houses, how most peo­ple buy cars, and how many peo­ple buy fur­ni­ture and con­sumer goods.

And as a re­sult, we over-pay for all of them.

What galls me most about the likes of After­pay, Ox­i­pay, Lay­buy and PartPay is that they are all ex­tremely short-term debt.

Take Ox­i­pay. Buy a TV for $900, and re­pay in four fort­nightly in­stal­ments of $225.

What’s wrong with just wait­ing eight weeks and sav­ing the money?

The ef­fect is the same: The shop­per gets the TV. Sure, they have to wait, but they in­cur no debt risk as a re­sult.

Debt has been so nor­malised in our so­ci­ety that peo­ple in­cur it thought­lessly.

I know well-paid folks who

‘‘Debt has been so nor­malised in our so­ci­ety that peo­ple in­cur it thought­lessly.’’

rou­tinely carry credit card debt they could do with­out, seem­ingly un­aware that money they spend on in­ter­est could be in­vested.

Then they’d be the ones col­lect­ing the in­ter­est, not pay­ing it.

The new buy now, pay later schemes are bet­ter than car­ry­ing debt on credit cards, but they look to me like the next step in nor­mal­is­ing debt.

‘‘Nor­mal’’ should be sav­ing for con­sumer goods, and dis­cre­tionary pur­chases, and (heaven for­bid) do­ing with­out things you haven’t ac­tu­ally got the money to pay for now.

The ba­sic rule of debt is that it should be used to buy, or im­prove, or main­tain ap­pre­ci­at­ing as­sets, or es­sen­tial ones.

That means ed­u­ca­tion, houses, busi­nesses, and (some­times) ve­hi­cles.

It may also mean white­ware, de­pend­ing on your house­hold in­come.

Trag­i­cally, for some house­holds on re­ally low in­comes, avoid­ing the des­per­a­tion debt trap is very hard.

The rest of us have no such ex­cuses.


No sav­ings? The temp­ta­tion is to buy things us­ing short-term loans. Re­sist it.

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