An Associated Press report dug into “buy now, pay later” programs and the problems they can cause. They can be particularly attractive to people with poor or no credit histories. There’s been press over the years arguing that the Gen Z demographic — those born between 1997 and 2021 — has been particularly enamored of the arrangements and that somehow it is putting them in debt more than any other generation.
Except, they aren’t.
Buy Now Pay Later
Let’s start with BNPL programs. In theory, they can sound fine for someone without available credit, or who doesn’t want to use up more: installation payments that sometimes can be completed without interest. As the Consumer Financial Protection Bureau explained, the loans generally ranged from $50 to $1,000, spread across four payments. There are late fees if the buyer misses a payment and there can be fees for declined payments. Some plans include interest or finance charges.
Originally big with online purchases of goods, the concept has spread out to cover “travel, pet care, and even groceries and gas,” the agency wrote previously in 2022. “Apparel and beauty merchants, who had combined to account for 80.1% of originations in 2019, only accounted for 58.6% of originations in 2021.” Acceptance rates rose from 69% in 2020 to 73% in 2022. Ordinary credit has recently hit record-high rejection rates.
Some Get in Trouble
The Associated Press looked at the question of BNPL. They reported that consumers can overextend themselves and things get worse if the consumers use a credit card for payment because that opens the potential to carrying credit charges over months.
“The reality is that the increased cost-of-living and inflation have put more people in a situation where they’re already relying on revolving credit,” Mark Elliott, chief customer officer at financial services company LendingClub, told AP. “The psychographics of ‘buy now, pay later’ may be different — people don’t think of it as debt — but it is.”
Researchers from Goethe University Frankfurt, Humboldt University of Berlin, and Duke University found that the process effectively offers “lower prices to low-creditworthiness customers.” BNPL increases sales by 20% and the benefits to the merchant outweigh their costs.
Emily Childers, consumer financial expert for personal-finance technology company Credit Karma, told AP that internal data showed credit card balances up more than 50% for Gen Z and millennial members since March 2022.
That last statement can be stretched further than perhaps other data would suggest. Fortune ran the following headline, “Gen Z is drowning in debt as buy-now-pay-later services skyrocket: ‘They’re continuing to bury their heads in the sand and spend’”.
The credit card balance growth is concerning. But does Gen Z need lectures from everyone else?
The Real State of Debt
Gen Z members often get criticized from all ends. But the graph below from the Federal Reserve Bank of New York suggests otherwise, at least in this case.
The blue bars at the bottom are Gen Z and they are smaller than for any other group.
CreditKarma has a list of average total debt by generation:
· Gen Z — $16,283
· Millennial — $48,611
· Gex X — $61,036
· Baby Boomer — $52,401
· Silent — $41,077
The debt includes all types of consumer debt products — credit cards, personal loans, auto loans, mortgages, and student debt. It may be that Gen Z is at the low end because of their stage of life. Perhaps this will increase over time. But right now, older generations might want to skip the finger-wagging.