Why Gen Z is falling into the buy-it-now, pay-later trap
“Besties, I don’t know who needs to hear this, but: just because you pay on Afterpay doesn’t mean you don’t pay”, TikToker Maddie White warns his 2.5 million followers by looking directly at the camera. “Four hundred dollars is still $400, and if you can’t afford it all at once, you probably can’t afford it at all.
Video caption: “Afterpay is the only reason none of us 20 something dogs have savings.” This content, which the 26-year-old Los Angeles-based influencer filmed last year (and has since amassed over 300,000 views, over 52,000 likes and around 500 comments), strikes a surprisingly different chord than her rate. usual fun fashion shopping and outfit fittings. But the message, she said, was badly needed: a lesson in the impact of buy-now-pay-later (BNPL) services that she personally had to learn the hard way.
“I was broke all through my early 20s, so when I wanted to buy clothes, I found them on a site that had Afterpay or Klarna,” White, who first met BNPL on Boohoo and Nasty Gal after it was announced to him. as an option to pay in installments rather than the full amount, says ELLE.com. “I couldn’t afford anything, but I could afford this small payment. This is how you find yourself in a tricky situation, because when you have several purchases at once, all of a sudden you have payments that are in the hundreds or thousands of dollars. It definitely allowed me to make more irresponsible purchases.
For the uninitiated, BNPL is essentially a payment plan – a type of installment loan – which divides the total sum of your purchase into equal payments (usually one payment every two weeks, spread over six weeks), often without incurring interest. The most important are Affirm, Afterpay, Klarna, PayPal, Sezzle and Zip. And what makes using the BNPL so irresistible and more appealing than, say, a credit card, is that virtually anyone (with a bank account, that is) can take advantage of it. , whether you have bad credit or just plain credit. So it’s easy to see why Gen Z, a demographic that may not have access to credit cards but, for the first time in their lives, has purchasing power, is a natural target. .
“Gen Z includes some of the top users of BNPL apps, but it’s not always clear how the platforms work, and they often differ from each other,” says Cassandra Napoli, senior strategist at Trend Forecasting Company. WGSN Insight, which notes that a person can use BNPL in two ways: 1) to buy necessities and 2) to buy non-essential items that help them maintain their social status and influence, even if they don’t. can’t afford to pay them. “Young and impressionable consumers might not be aware of the financial commitment they are making when they first use these services.”
Napoli adds: “Despite rising inflation, BNPL platforms could help consumers access trending pieces seen on TikTok, but there may be a knowledge gap at play here. They may just see the possibility of accessing an expensive item or several viral pieces without having to pay for them right away…and they may not understand the long-term impact of not paying.
Already, this pattern of missing payments – and therefore, going into debt – is beginning to emerge. According a survey conducted by Piplsay43% of Gen Zers missed at least one payment in 2021. A study by Qualtrics on behalf of Credit Karma found that more than half of Gen Z and Millennials respondents have missed at least one payment, compared to Gen Xers (22%) and Baby Boomers (10%). NYU marketing professor Scott Galloway called the BNPL “equivalent to the subprime mortgage crisis” for Millennials and Gen Z in a Pivot podcast episode.
Having unlimited access to inventory has a powerful psychological pull. “You buy something, but you don’t pay for it right away, and that gets people in trouble because it delays the inevitable,” says psychologist Susan Weiss. “You end up thinking you have more money than you have because you really owe that money – and you use that money to buy other things, and it can get out of hand. It’s a slippery slope and a truly painful lesson for young people to learn.
White, for her part, is not at all surprised that many fell victim to the BNPL’s trap, as she was “absolutely that girl”, missing payments herself after buying several items and losing track of what ‘she had to. But she’s quick to say that she’s never racked up thousands of dollars in debt – she’s managed to change her spending habits, which she attributes to getting older, having more disposable income (she no longer uses BNPL for this reason) and to be more thoughtful with its purchases. But she no doubt understands why the buying pattern has such a firm grip on Gen Z, especially with the increasingly truncated trend cycles on TikTok.
“When I was 18, I was definitely buying new outfits for every weekend, and that was before TikTok — a lot of it was peer pressure,” says White, who uses her 19-year-old sister. as an example of how Gen Z stores. “It’s cool to have new things instead of wearing the same looks over and over again. And TikTok has made it 10 times worse because micro-trends last about a month. [My sister] tells me that all the girls in her sorority buy new clothes on Shein every week: they order it Thursday, pay shipping the next day, it arrives in time so they can wear it to a sorority or frat party on Saturday night, then they throw it away.
Fast fashion is by no means a new concept, but ultra-fast and cheap fashion brands, like Shein (the biggest on the market, $15.7 billion in sales in 2021) with its two-week turnaround, Boohoo and Fashion Nova have only exacerbated the problem, turning TikTok into a breeding ground for this type of buy-it-now behavior and making Gen Z more susceptible to BNPL.
“TikTok works like a library of viral aesthetics and micro-trends, with new ones popping up seemingly every day; much like other visual platforms, it has ignited FOMO and attached social status to these trends, making young and impressionable consumers want to join, ultimately creating an endless appetite for newness and driving consumerism,” says Napoli, citing a 2018 WGSN report. titled The Generation Z Equation, which analyzed the two opposite polar sides of the generation. There’s ‘Gen Me’, those who are driven by trends (and the group most likely to be swept up in viral TikTok fashion trends) and ‘Gen We’, the group forcing brands to rethink their strategies around issues such as sustainability. “Of course, buying in trends costs money, and with Gen Z strapped for cash and facing economic uncertainties and rising inflation, it only makes sense that they turn to BNPL apps. to help fund their trending ambitions.”
It also doesn’t help that there are TikTok videos dedicated to glorifying the use of BNPL (some are also paid ads, with Gen Z influencers selling BNPL services to other Gen Zers) . Indeed, the hashtag #BuyNowPayLater reports nearly 45 million views on the social networking service – an endless scroll of videos that show users bragging about how little they paid for a purchase.
“The moment you click check-out, you feel like you’re only spending $10 instead of $50,” White says. “But I don’t fundamentally believe there’s anything wrong with [BNPL], because it boosts sales for all companies that use them and makes the products more accessible to the younger Gen Z market, who lives paycheck to paycheck. It is more acceptable to pay for part of something rather than all at once. »
This is precisely why Rebecca Minkoffthe designer behind her eponymous ready-to-wear and accessories line has chosen to partner with Swedish fintech Klarna (his brand is one of Klarna’s 400,000 global business partners). “We want to give our customers the easiest, smoothest way to buy something,” she says. “For many of our customers, this is their luxury purchase, so it’s a no-brainer for those who can meet minimum payments and not feel the burden in a single pay cycle. If it had been available when I was young I would have used it in a heartbeat.
The problem is that BNPL’s convenience makes it extremely easy to overspend. And there is nothing stopping someone from jumping from one BNPL platform to another because unlike the credit card industry, the BNPL industry still lacks oversight. In response to Gen Z’s late payment, a Klarna spokesperson said safeguards were in place to prevent this from happening, including carrying out eligibility checks, reassessing loan criteria, providing spending limits, sending reminder notifications before an upcoming payment and restricting usage. services until all missed payments are made. (On average, an outstanding balance on Klarna is around $70, which is significantly lower than $5,525, the average outstanding credit card balance in the United States)
“We believe people should pay with the money they have first, but where it makes sense to use credit, our interest-free products offer a fairer and more sustainable alternative,” a doorman said. -word by Klarna, who asked to remain anonymous. “Our products are not designed to encourage people to borrow as much as possible at the highest possible rate, like credit card providers. Financial wellness is built into our products and everything we do, from our short-term repayment plans to in-app budgeting tools to help encourage healthy financial habits.
Even so, it does not address the current beer crisis. And while it’s easy to single out BNPL companies, the most glaring problem is the lack of financial literacy in the United States. in doing so, they “democratize education to the masses, which is key to encouraging responsible consumer behavior”. She continues, “The reality is that these platforms can pose a long-term risk to those who cannot make their payments. There must be warnings communicated to the public that tell them that in addition to positives, there are also dangers and downsides for BNPL.
White believes a high school financial literacy course should be mandatory. “It’s basically impossible to get a credit card without having already established credit,” she says. “Nobody teaches you how to establish good credit and stay on top – and that makes it very difficult for the younger generation.” Only time will tell if this will help Gen Z resist the temptation of one-tap TikTok-fueled fashion trends.