Buy now, pay later is a bad sign
By Morf Morford
Tacoma Daily Index
As an individual, as a business, or as a government, it’s rarely a good fiscal strategy — at least as a long-term policy — to spend money you don’t have.
Sometimes, like in a major purchase, like a house or a vehicle, in our current economy, that’s the only way to make that purchase.
There was a time, not so long ago, when mortgages weren’t routinely available to most homeowners – and, as you might guess, that dampened house prices (but that’s a any other subject).
These days, most of us buy now and defer payment. In fact, according to Experian, 4 out of 5 U.S. consumers are using buy now, pay later, from clothes to cleaning products, and most shoppers said buy now, pay later could replace their traditional payment method (like in credit cards).
Major retailers like Target, Walmart and Amazon are offering buy now, pay later for online and in-store customers.
Inflation costs the typical American household $311 more per month.
And if you know anything about budgeting – domestic or otherwise, “extra” is rarely a welcome budget item – especially if it seems to be semi-permanent.
To put it mildly, when people start buying household goods like groceries on credit, it signals a gap that is only getting wider.
Buyers only use buy now, pay later if they don’t have the cash now.
The control hypothesis is that they will get the money later.
Two-thirds of buy now, pay later borrowers are considered subprime, which means they are particularly vulnerable to economic shocks or any downturn.
And like the notorious subprime mortgages of 2008-09, those piled up grocery bills pile up and pile up and eventually get paid – or not paid.
These bills typically carry penalties for late – or non-payment – and 42% of consumers who took out a buy now, pay later loan made an additional late payment on one of these loans.
These fees cost money and could have a permanent impact on your credit rating.
You may have to pay for that pair of shoes or that bag of groceries for several months.
And the next and the next…
According to a recent survey, about 50% of us are considered “financially illiterate”.
It just means we barely understand the basics of money – or, like most of us in traditional written literacy, we know the basics and assume we know the underlying dynamics that make that everything works – or does not work – in our favor.
Financial reversals and unexpected difficulties – or rewards – can arise in front of each of us.
And, like in bad weather, the best protection is preparation.
Any type of debt, especially easily avoidable debt like consumer debt, is negative preparation, it sets the stage for financial disaster, as a trickle of small debt turns into a stream and then a crushing flood that washes over you. sweeps – and your intentions – definitely out of reach.
Negotiating recession (or inflation) and navigating the various twists and turns of an economy is best understood – or at least most unforgettably rooted – when encountered directly.
On one level, understanding finances is like understanding one of life’s other mysteries – from love to health to contentment.
As the old saying goes; life may be the best teacher, but it kills all of its students.
A disastrous economic encounter may not kill you, but you will never forget it.
If you’ve ever had a chance to talk to someone who survived the Great Depression, or even read stories, the common theme was that in those most difficult times, most people had “nothing “.
We might have cars, clothes, heat, and even adequate food, but for most of us having “nothing” would be a big improvement.
My parents, for example, never had a payment for the house – they paid cash for the essentials and then worked on their house with every paycheck.
Most people I know may be living well, but have mortgages, car loans, and consumer debt that would terrify previous generations.
Getting “down to zero” would be a major achievement for most of us.