Buy Now, Pay Later: The Afterpay Trap

Women with shopping bags walking and looking at phone

I hate to break the bad news to you if you’ve been a fan of the Afterpay type services, but they are probably not helping you with good money habits nor your overall financial wellbeing.⠀⠀⠀⠀⠀⠀⠀⠀⠀

Did you know that ‘buy now, pay later’ companies are some of the hottest companies on the sharemarket during this pandemic.

Let’s look at Afterpay.

If you had bought $100 worth of Afterpay shares in March this year, guess what they’d be worth now… $800!!!!

If you were a share holder this would’ve been exciting, but if you’re on the outside looking in like me, I’m worried.

Why?! Because it means there are a whole lot of people making enormous profits out of people spending money they don’t have! See the irony in that. Ouch.

Now, if you are a buy-now, pay-later user let me share some pointers with you on why I’m not a fan of these types of services and what you should do differently:

You are most likely purchasing something you can’t afford just yet.

A much better way is to allow money in your budget for the things that you want to spend money on. Save up for it and buy it when you can afford it.

Not only does it create good financial habits, it feels so much more rewarding.

You are more likely to overspend because the impulse is encouraged.

The psychology behind these schemes is to allow you to have something immediately for a fraction of the full price.

We are usually making decisions in the moment and our mind has a knack to play tricks on us and be impulsive and only see the instalment amounts required, not the full purchase amount.

The temptation will often lead us to spend more than we otherwise would have if we’d saved up for it.

Walk away, sleep on it and think carefully about your purchases before committing to them.

It might be interest-free, but you can still get ‘late-fees’.

Did you know that Afterpay alone made just over $46M in late fees last year?? And that’s just one company.

That’s a lot of people missing their payments.

Going for a home loan? Your Afterpay is considered a line of credit.

So many people get caught out on this and don’t realise.

Even if you have an Afterpay type account with nothing owing on it, it’s still counted as a debt!

Not only that, but banks look at your spending habits as part of their criteria when assessing you
as a good candidate, so make sure your spending habits are squeaky clean.

Instant gratification rarely gets us what we want in the long-run.

These services can fuel an instant gratification trap that could be hindering your best intentions.

In using them you are possibly lacking some self-discipline when it comes to managing your money.

If this is you, you need to switch the triggers and retrain your brain for ‘delayed gratification’.

Delayed gratification is one of the keys to financial success.

It’s the ability to be able to forgo some money in the short term to reach our long term goals (e.g saving for something, home ownership, retirement nest-eggs, building investments).

If you want to reach bigger financial goals, you need to train this gratification muscle to not give in to immediate temptation and impulse. You need to practice ‘delayed gratification’ everywhere you can.

To do this you need carefully plan, save and work towards the things that
are really important to your goals.

Be really honest with yourself about the use of these types of services and why you are using them. If you want financial success, you really need to practice good financial habits. And one of the most important is to budget, save and plan your spending.

It doesn’t mean you have to go without, it just means you are making sure your spending is thoughtful and going to the places that are important to you and aligned with your values, priorities and goals.

If I can leave you with something? Try not to fall into the trap of ‘having it now’.

Save up and buy whatever it is once you can afford it and it fits comfortably into your budget. You’ll feel so much better for it [and so will your budget!].

So how can I use Afterpay responsibly?

If I haven’t been able to convince you not to use these types of services, here’s a couple of tips on how to use it more wisely:

  • Stick to a budget – it’s so important to work out what you can afford and stick to that budget.
  • Link a debit card and not a credit card – don’t risk building up charges on your credit card.
  • Set reminders – make sure you have enough funds in your account on the date the instalments
    are due to avoid late fees.
  • Still sleep on it – think carefully about the purchases you don’t have the cash for right now, even though you can ‘after-pay’ it, walk away, sleep on it and work out if you really need.

Renae Vercoe is a Financial Adviser and the founder at Moneymode, she’s a Mum of two and has recently started a podcast the Savvy Mumma, her passion project where talks money in a meaningful, non-jargon way.

You can find her on Instagram @moneymode_ and Facebook


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