Nearly half of 16-to-24 year-olds in Britain used buy now, pay later services last year to help spread the cost of expensive fashion items and snazzy tech gear, new research suggests.
BNPL services enable shoppers to pay for goods in instalments after purchasing an item, often using informal credit agreements and usage has snowballed in the last few years.
Often, retailers team up with one of the big players such as Klarna, Clearpay or Laybuy with easy checkout and it has resulted in 42 per cent of Gen Z now using a BNPL provider in 2021.
Almost the same number said the services are ‘great at helping them afford the items they want to buy most,’ according to the comprehensive 4,000 strong survey by Student Beans.
Shopping fix: Of those youngsters that used BNPL providers last year, 57% used pay-later services to refresh their wardrobe and spend on fashion items
This is in stark contrast to their parents, two thirds of whom say they can be risky as they encourage young people to spend more than what they can afford.
Grandparents were found to be even more cynical, with three-quarters expressing the same concerns.
The research found that young people are using BNPL for all manner of purchases.
Of those youngsters that used BNPL providers last year, 57 per cent used pay-later services to refresh their wardrobe, 47 per cent used it to buy tech and 27 per cent used it towards health and beauty products.
The research also found 14 per cent used it for purchasing food and drink.
Andrew Hagger, personal finance expert and founder of MoneyComms said: ‘BNPL can work well as a budgeting aid if used responsibly, but the ease at which people can sign up for multiple BNPL deals without proving they can afford it, remains a great cause for concern.
‘It’s worrying to see BNPL being used for essentials such as food and drink which makes you think some of these borrowers may already be in financial difficulty if they are borrowing to put food on the table.’
At present, the sector is dominated by three main players, Klarna, Clearpay and Laybuy – Klarna being the biggest with more than 13million shoppers spending £2.7billion a year in the UK.
Although appealing at first, if used irresponsibly, some are concerned BNPL schemes may result in a build-up of debt or even a negative impact on credit ratings.
As many as 30 per cent of BNPL users claimed to use it to pay for purchases they can’t otherwise afford, according to research by the comparison site, Finder.
‘My advice to young consumers is don’t buy something just because you only have to stump up a third of the cost up front,’ says Hagger, ‘if it’s not something you really need don’t get yourself in debt over it ,as it could have long term negative consequences for your credit record.’
|Health and beauty||27%|
|Food and Drink||14%|
|Holiday and Travel||9%|
How to use BNPL responsibly?
1. Budget responsibly
Although BNPL services are enticing, you must always ensure you’ll have the funds to pay off the borrowed money.
Plan in advance by using spending spreadsheets or budget calculator tools to get a clear understanding of your monthly finances as well as what’s feasible within your budget.
Money management apps such as Emma and Money Dashboard can be a great way of allowing you to better understand and visualise the state of your finances.
Emma, described as ‘your best financial friend’, is a free app designed to help you avoid overdrafts, cancel wasteful subscriptions, track debt and save money.
Money Dashboard was voted Best Personal Finance App in both 2020 and 2021 and is one of the more popular apps available, with half a million users.
It allows you to set up multiple budgets and send notifications if you overspend, while also allowing you the ability to predict any future spending.
Keith Kilcourse, credit and loans publisher at Finder, says: ‘Whatever form it takes, spending beyond your means is a quick way to get into financial difficulty – especially when you have limited experience with budgeting and your financial situation is changeable. As such, caution and close scrutiny are warranted.’
2. Ask yourself – do I need this?
Half of 16-to-24-year-olds admit feeling pressured into buying expensive items to show off on social media, according to Student Beans.
It found that on average, young Britons use around £71 from budgets intended for their monthly food shop to make clothing purchases only to be worn for Instagram and TikTok.
Half of 16-to-24-year-olds admit feeling pressured into buying expensive items to show off on social media
Lewis Potton of Student Beans says: ‘Before making a high-end purchasing decision, always ask if you need that item or if it’s just for show.’
3. Saving is better than borrowing
Although BNPL offers speed and convenience, it should be used for needs and not wants.
Kilcourse says: ‘Putting money aside each month and then buying the item remains a safer option.
‘Let’s not forget, BNPL comes with risks attached – you could be hit with late payment fees or even damage your credit record if you fall behind on payments.’
4. You can return an item if you’re unsure
Nearly half of shoppers return items purchased via a payback later service before being charged for it, according to Student Beans.
‘If a purchase is not what you were hoping for, check your items returns policy – as you should have every right to return it – even if purchased through a BNPL payment scheme,’ adds Potton.
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