Articles

Jul 10

Buy Now, Pay Later

Posted by Peter Marmara-Stewart at Wednesday, July 10, 2019

Did you know that Australia’s household debt nears the highest in the world1?

While governments use retail spending as an indicator of economic ‘health’, the sad reality is that personal debt and the lack of savings are likely to be a major cause of mental health issues amongst individuals and families2.

It is not all that long ago that if we wanted to buy something, we put money aside for it and when we had saved enough, we went and bought the item.

People borrowed money for a house and often for a car, however cash was used to buy everyday consumer items like furniture, electronic, clothes, and holidays.

For those that wanted to guarantee they got what they wanted, layby was used to enable payment of the goods in instalments before they could be taken home.

But then in 1974, the major Australian banks joined forces and introduced Australia’s first mass credit card – Bankcard.

Now, rather than wait until we have saved enough money, we can have instant gratification and buy now – and pay later.

Credit card debt in Australia is around $45 billion3. That is just on $2,000 for each man, woman and child in the country today!

But what do you do when your credit card is ’maxed out’ and you simply must have that new clothing, dental treatment, electronic gadget, car repairs, or even a holiday?

You simply use one of the emerging arrays of “buy now - pay later” payment options, like Afterpay or Zip Money, to name just two.

These companies provide short-term financing (usually $1,000 to $2,000), often structured around weekly or fortnightly instalments. Short-term financing may, in some cases be interest free however fees still apply, particularly if repayments are not made on time.

The Australian Securities and Investment Commission (ASIC) recently released a report4 into the operations of ‘buy now – pay later’ schemes and how this emerging trend is influencing our buying patterns, especially the younger generation.

In its report, ASIC notes that in June 2018, 1.9 million transactions were made using ‘buy now – pay later’ with the total amount outstanding at almost $1 billion.

While ’Buy now – pay later’ arrangements offer convenience enabling individuals to purchase items without having the cash immediately available, the money has to be repaid at some stage. Like credit cards, these finance arrangements can be a wonderful servant, but a terrible master.

If planning to purchase something with any kind of credit, always check you budget first, taking into account any upcoming bills, and ensure you will have the money to make the payments as they fall due, without enduring stress.

Cutting spending, reducing debt and accumulating savings is a far more positive measure of personal financial and mental well-being. If you ‘must’ have that item, consider saving up before you buy it. You will feel so much better about your purchase.

"In June 2018, 1.9 million transactions were made using ‘buy now – pay later’ with the total amount outstanding at almost $1 billion."
1 https://www.finder.com.au/australias-personal-debt-reportedas-highest-in-the-world#compare
2 https://ndarc.med.unsw.edu.au/blog/mental-disorders-debtthere-link 
www.abc.net.au – 4 July 2018 4 ASIC Report 580: Credit card lending in Australia - Published July 2018, page 17.

By Peter Kelly, Retirement Strategies and Solutions