Beware of the “Buy Now, Pay Later” Psychological Pitfall
Finding ourselves tempted by flexible repayment options is understandable because we receive constant messages from advertisers that we need the latest clothing, makeup, or possessions to make ourselves worthy and lovable.
Marketers use psychology to make us spend our money. Even though they are only a small portion of overall spending, buy now and pay later (BNPL) arrangements are on the rise. By 2025, experts believe they will top $1 trillion in annual gross merchandise volume in the United States.
My client, Jessica, found a Givenchy black dress online that she couldn’t live without. The $2,000 price tag was way beyond her budget, but when she discovered she could buy now and pay later, that little black dress seemed not so far out of reach.
Jessica committed to four $500 payments, and it seemed “doable” until she needed new tires for her car. Now she was in a real financial bind — and one that negatively impacted her mental health as financial anxiety and worry consumed her mind.
The appeal of BNPL is that you can make installments over time instead of paying the full amount upfront. Plus, you get the instant gratification of having the merchandise in your hands. And the bonus of not having to pay interest.
As a result, it’s become increasingly popular with Millennials and Gen-Zers. If you are prone to making impulse purchases (which can sometimes be related to unmanaged mental health issues such as ADD/ADHD, addiction, substance abuse, low self-esteem, anxiety or depression) these offers can be especially tempting.
Are You Being Targeted? Don’t Be Played a Financial Fool
People who aren’t eligible for credit cards qualify for BNPL programs because there’s no formal credit check. Unfortunately, this places two groups at risk of making purchases they won’t be able to pay back:
- People with no credit, such as teens and young adults. They may lack the financial literacy to know their budget and cash flow and whether or not they will be able to make payments when they are due. They may not understand the fees for usage or fines for late payments. Stress, feelings of overwhelm, and relationship conflict with parents, roommates, partners, or loved ones can be the result.
- Those with poor credit. This may include the poor and people who are overextended with their credit. People with addiction issues, such as drug or alcohol problems, gambling, or compulsive spending may also be susceptible. BNPL perpetuates and exacerbates financial problems as well as addictive and compulsive behaviors.
Both groups may try to pay the BNPL installments with high-interest credit cards and fall into unmanageable debt, leading to financial and mental health problems. Financial distress accounts for 16 percent of suicides in the US and correlates with lower life satisfaction, higher stress, anxiety, and depression.2 Recognize if you are in these groups and prioritize your mental wellbeing.