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You had your best-laid plans and then COVID-19 came along and hammered the entire economy. But you’ve got this – if you have the right information. Join Rob Carrick and Roma Luciw on Stress Test, a podcast guiding you through one of the biggest challenges your finances will ever face.

ROMA: So you’re online shopping for a new coat - and you find exactly what you’re looking for.  It’s 100 dollars. You get your credit card out when you see another option: four scheduled payments of 25 dollars.

[THEME MUSIC]

If you’ve bought anything online, you must have seen the Buy Now Pay Later option. Maybe you’ve even tried it out. But is it a smart way to pay for stuff? Are there any hidden risks?

ROB: Today, we’re taking a look at “Buy Now, Pay Later” plans - where payments for stuff you buy are spread out over a period of time. Most of them have zero interest, too. It’s big with retailers and you see it on A LOT of websites. From makeup to electronics and even plane tickets. Should you try it?

ROMA: Welcome to Stress Test, a podcast about personal finance for Gen Z and millennials. I’m Roma Luciw, personal finance editor at The Globe.

ROB: And I’m Rob Carrick, personal finance columnist at The Globe and Mail. So Roma, BNPL is relatively new. But the concept of deferred payments certainly is not. I’m reminded of those commercials in my childhood for juicers and slicers and dicers, just four easy payments of 19.99. Does BNPL remind you of that?

ROMA: Sure does. I remember those commercials. Watching those when I was a kid. Wasn’t there a channel specifically for that?

ROB: The home shopping channel? Isn’t that what that’s all about?

ROMA: Yeah, it does feel like we’ve done a 180, right? BNPL has arrived on the scene. Why don’t you tell us what that is, Rob?

ROB: Well, let’s put it this way. I was looking at airline tickets not too long ago. I just blue skying, not going anywhere that spectacular. And I noticed that Air Canada was offering the option to pay for your tickets in instalments. That is BNPL. It could be four instalments once per month. It could be they give you a date and you have to pay the debt by that date. It is a tool for retailers to sell more. It’s a programme that retailers pay for. You the user don’t pay for it if you pay on time because you make your instalment payments, but there’s no interest attached to it and no fees. In many cases, it’s actually sounds kind of attractive on the surface. The retailers paying the freight for this because they believe they will sell more products that way. I was looking at a report on BNPL and it predicts that there will be a total of many billions of dollars spent that way by the end of 2021. And I get why it’s super convenient and it’s quite comfortable. The idea I can buy this, I get it now and I pay later and I’ve got myself committed to a program. I’ll make these monthly payments. It sounds kind of good. I see why people are doing it. Do you see a lot of Christmas shopping happening with BNPL this year?

ROMA: Absolutely. I think it’s going to be something that a lot of people use to pay for their Christmas purchases. I think one of the concerning things that I’m hearing about is the fact that BNPL seems to lead people to spend more than they otherwise would have. When you think it through, it makes sense. You put a number of things in your basket and all of a sudden your total is smaller because you’re spreading out the payments. And so you think, you know what? I

that number at the bottom and think I have the ability to spend more. What is less easy to see is the fact that that is going to continue to drain you in the coming weeks and months, and that’s where I think it’s problematic.

ROB: One thing we have to acknowledge is that BNPL is a big and growing trend in buying things, and we’re personal finance people and that interests us. In today’s episode, we wanted to hear from Canadians who have used B-N-P-L. We spoke to two women in their 20s who have very different perspectives on it. That’s up next.

[MUSIC TRANSITION FADE IN]

SARA: This is freaking great. I love it. I think everybody should make use of it. I think everybody should look into installments and see like they’re not as bad as they seem unless it has credit involved, obviously, and be wise about your decisions as well. That’s all I got to say when it comes to shopping because I’ve definitely done some damage to myself in that sense.

ROMA: That’s Sara - a millennial who is clearly a fan.

SARA: So my name is Sara. I am twenty six years old. I live in Ottawa and currently I’m a student at the University of Ottawa.

ROMA: Most sales pop up around - or before - big holidays and events. Sara started using “Buy Now, Pay Later” while looking around on Black Friday last year.

SARA: So I was actually shopping for hair tools, and that was the first time that I was able to make installment payments through like online, like through a website. It was just to buy hair straighteners, like curling irons and a few other hair accessories that I had to get in. My bill is quite large. I had to consult, like, put them on installments instead of paying upfront, because at that time it just felt like an impulsive buy and I had to do it. So yeah.

ROMA: Sara bought hair products - AND a laptop she needed for school. The payment plans give her the flexibility to save money while buying things she wants - and things she needs.

SARA: For me, it was like one of the big things is like keeping emergency like backup savings. So that was another thing for me was to pull money out of my savings, to pay for my laptop where I could just do it like paycheck to paycheck and then pay it off with the money that I’m making.

ROMA: BNPL apps really target Gen Z and Millennial shoppers. And Sara doesn’t see the trend going away anytime soon.

SARA: I do think that this is something that’s going to be like the new norm in terms of like online shopping for younger generations, especially because we live in a world now, which is just based off of trends and kids, they just want something new all the time. So this is like the best thing that they could probably come across as like kind of have that opportunity to buy new things without having to worry about paying for them right away.

ROMA: Even though she’s a fan of BNPL, Sara feels there are pros AND cons.

SARA: It could be dangerous because it created a lot of bad shopping habits, which I personally have I and it’s really hard to control, but. I think it helps with realizing that if something’s out of your budget, whether you want to make installment payments, which is kind of nice, you know you can still get what you want or you realize it’s a little bit out of my budget and you just don’t want to get it. It helps you not get it if installment payments weren’t there. But it’s kind of there to satisfy your own hunger for that item. So it’s great. Yeah.

[MUSIC TRANSITION]

ROMA: I think Sara’s story will be relatable to many of our listeners. Some of the things she’s doing sound great. She has savings. She budgets. She’s thinking about how she’s spending. The part that worries me is how she acknowledges that some of the bad shopping habits that she has, or at least the ones that cause her concern that are hard to control, I think BNPL could be fuelling that fire.

ROB: I think with Sara’s story, it shows me, is the tension that people feel when they’re shopping for things and they feel they may not have enough money, but they really want or feel they need something. And can I afford it? I don’t know if I can. But with BNPL, those small payments, it seems to make it possible. And I think BNPL puts a lot of responsibility on people too to make smart financial decisions.

[MUSIC TRANSITION]

ROMA: After the break, we’ll hear from another Canadian shopper who discovered the “Buy Now, Pay Later” option last year and why she isn’t sold on it.

[MID ROLL]: Hi, I’m John Graham, president and CEO of CPP Investments. COVID 19 is the most serious challenge we faced in a generation. It has tested our physical and our mental health and also the financial security of many. I am pleased to report that the CPP fund withstood the stresses and the volatility of the global pandemic. The fund remains strong and is sustainable for the next 75 years. At CPP Investments, we’re investing today for your tomorrow. Please visit CPPinvestment.com to learn more.

ROMA: Meet our next shopper, a GenZ.

SARAH: My name is Sarah Lewis and I’m twenty three years old and I’m a staff writer for Moneywise, which is a personal finance publication and I live in Toronto.

ROMA: Sarah came across the BNPL option when buying makeup on Sephora’s website.

SARAH: I think it was sixty four dollars, so then divided by four, that’s 16 bucks for each installment. So you’d be doing the $16 dollars upfront and then having that split over its biweekly installments.

ROMA: Sarah doesn’t love the idea.

SARAH: And for me, like retailers and makeup companies, things like that, those are more like once as opposed to necessities. So for me, it didn’t really make sense to use, you know, buy now, pay later if you can’t afford to pay for something in the first place with your credit card. And

I think you can really lose sight of how much you’re spending in a month. And I think I would be more prone to impulse buys and things like that if I was relying on buy now, pay later.

ROMA: Another reason why Sarah doesn’t like BNPL is because she’s thinking more about her long term financial goals.

SARAH: Another reason would also be a lot of these platforms don’t report your information to credit bureaus, which can work for, say, someone who isn’t paying their bills on time, because then that’s not affecting your credit score. But if you are someone that does pay your bills on time, then you would actually want that information reported to a credit bureau, because that can actually help build your credit score, which is pretty important if banks and lenders look at it to determine if you’re a reliable borrower, if you’re applying for a credit card or a loan, and things like that. And as well as what I was seeing with buy now, pay later is if you’re not saving and you’re spending more. And that can also be an issue when it comes to purchasing big things in the future, like making that down payment.

ROMA: So would she ever make an exception and use BNPL?

SARAH: For me, I would prefer not to use it unless I absolutely have to. Maybe if my laptop broke down or I needed, you know, a really big sort of electronic or home furnishing furnishing things like that, I would be a situation where I might consider using buy now, pay later to like spread those payments over a longer period of time as opposed to just paying for the whole thing upfront.

[MUSIC TRANSITION]

ROB: I think Sarah is an example of someone who’s thinking really clearly about BNPL.

She’s done her research. Considered all her options, and I’d encourage anyone that is thinking about using BNPL to do the same

ROMA: Yeah, she’s clearly someone who has spent some time planning out her finances. She’s aware of the dangers. She’s trying to steer clear of trouble and temptation with online shopping. We all feel it. I know I do. When I get on there and start looking for stuff. Just don’t put yourself in that situation. It’s a smart move.

[MUSIC TRANSITION]

ROB: So we’ve heard opposite views of BNPL from two Canadian shoppers. What do the experts think? To find out, I spoke with Jessica Moorhouse, a financial educator and host of the More Money podcast. Here’s our conversation. I came across this in a purely a business story in the report on business, The Globe’s report on business, I guess about a year or two ago and I thought, “Wow, this sounds like old school instalment payments, not good personal finance.” And I was kind of negative on it and I wondered how it would take off, and I see it starting to gain momentum. What are you seeing with buy now, pay later. Are people asking you about it? Do you feel it’s getting any  pick up in the market place?

JESSICA: Yeah I’m definitely being asked about it. I feel like I’ve had this conversation with so many people and I feel like me and you are on the same page. I’m not a big fan because it is kind of an old product repackaged and, you know, a little bit more shiny and more digital. And it’s definitely marketed to you like, there’s lots of different players now. And they’re all definitely marketed to Gen Z and millennials. But you know, really what it is is just a short term instalment payment loan that if you go on every website and I was looking at all the different ones out there, what you will see is, oh, there’s no downside. They’re only talking upside. It gives me convenience. And maybe I want to buy this thing. I don’t have the cash right now, but maybe I will next paycheque. And so these, you know, biweekly instalment payments I have to make. Oh, I can definitely make that work. And it says, Oh, there’s no interest or there’s no late fees, oh this is great. But if you do some digging, which I definitely have, nothing comes for free. There’s no such thing as a free lunch. Someone is paying the piper at the end of the day, and I feel like there are a lot of kind of negative things that could result from using these different buy now, pay later apps.

ROB: OK, let’s get the benefit of the digging that you’ve done. What have you found that has made you, sounds like, pretty negative on these things?

JESSICA: Well, I think the first thing is sometimes it would explain there could be a late fee if you do not pay your outstanding balance, you know, in the time frame that you’re supposed to. But then you’re like, Well, what is that fee though? Like how much are we talking? Are we talking $10, $50? What? And it’s very difficult to find that information. And the other really annoying thing too, is although there’s so many different ones popping out, they all have slightly different rules, you know, requirements and fee structure. So they all are a bit different. And so if you are juggling all of these different apps because I’m sure if you’re going to use one, you’re probably going to use another one. It’s going to be very difficult to honestly keep all that information, you know, organised. And the thing that really kind of for me was like, Oh, that can be dicey is all of them pretty much have the same structure in that you’re paying out, you buy it, you buy the thing, you get it immediately and you just have to do one fourth of the instalment payment and then you have, you know, three other instalment payments to pay. Then you’re off the hook, you’re debt free. That’s great. What it doesn’t really explain is how quickly you have to make these instalment payments. It’s biweekly. That’s, you know, usually they usually they have a time frame within six or eight weeks. You have to pay off the entire balance. And honestly, if you were buying something and you don’t have the cash now, how likely is it that you will have the cash in six to eight weeks is probably unlikely.

ROB: What do you say to someone who thinks I don’t see why I wouldn’t want to use this sort of thing? I don’t mind paying a little bit out each month. In fact, it seems like a sensible thing. My mind is regimented towards budgeting and making payments in sequence for things I can. I can budget for that. Why would I want to tie up all my cash buying my thing with the money front? I’d rather pay it out a little at a time. I think people are starting to think that’s a smart way to pay for things. What do you think?

JESSICA: I feel like so many people think of a best case scenario they forget about. But what if something happens if you do not have the cash to buy something on some website like a Sephora or a clothing store, I’m going to say that probably means you don’t have an emergency fund. So if something happens, where are you going to get that cash? You’re going to get into debt. And the other thing to remember, too, is with all these apps, you do have to connect either a credit card or a debit card, and that’s how it takes its payments from you. So lots of people are probably connecting their credit card and then getting into credit card debt. So there’s always something that you have to kind of be mindful of. For me, if that’s your argument, then my argument back would be then just save it in advance. You’re going to have to pay off the thing within six to eight weeks, so give yourself six to eight weeks to save up for this thing.

ROB: Jessica, where do you see buy now, pay later being used the most?

JESSICA: Well, I think a lot of obviously online retailers and again, I think the reason these buy now, pay later apps have exploded is because of the pandemic. We’ve all been stuck at home. We have a lot more time to do some online window shopping. We’re bored. And some of us, you know, because we have cut down our costs because we don’t have to commute to work and things like that. We have kind of a little bit more money or, you know, maybe not, but we have the inclination to spend more money. We are definitely, I think, in this mode of desire, whatever how to spend it now, I just need something exciting in my life. And so these apps have come at the perfect time where people are ready to spend money, whether they have it or not. They’re here to take your money. And what’s fascinating is some of the retailers, though, that have these apps associated with them, they are for like, very, you know, inexpensive things. I think typically when we think of like getting an instalment loan, you think of maybe a big purchase like a television - well, even though those are cheaper now than they used to be or furniture. But now you can go, yeah, like clothing stores and makeup and things like that. And for me, it just does not make sense to get an instalment loan to buy some makeup at Sephora or something like that. You know, these are things really that all the things that are associated with these and all the retailers are to buy things that will immediately lose all of its value as soon as you get it.

ROB: It strikes me that it’s a particularly bad idea to make instalment payments on something that could very well be used up by the time you make the last instalment. What do you think about that?

JESSICA: Absolutely, absolutely. That is the crazy thing. I feel like especially when it comes to things like, you know, clothing - and a lot of it is like fast fashion. So it’s going to be out of style, probably by the time you’ve paid off your instalments or you know, in the next couple of months and then you’re going to do the process again. You’re like, well, I need a new wardrobe because everything I bought is not in style anymore. And so you’re going to continue doing this cycle of getting into instalment payments. And I think for me, that is the biggest thing that people need to again be mindful of is what are these apps really doing? They’re providing convenience. But again, it may be for a certain price, but it’s also certainly not a very good habit in terms of being a consumer. Like it’s encouraging you to spend money now without pre-planning for it.

ROB: It strikes me that the big risk here is I try buy now, pay later, and I think, wow, it works really well. Now I’m buying a new thing and I’m going to try that. And next thing, you know, I’ve got five, six, half a dozen buy now, pay later accounts that I’m trying to juggle. And that’s basically the tipping point. And I start to fall off site and all of them. Can you imagine this sort of thing happening just this. This mushrooming a buy now, pay later to a point where we’re all carrying more buy now, pay laters than we could ever hope to repay.

JESSICA: Very easily. And although lots of these apps do have, you know, either balance limits or if you’re late with a payment, then they kind of cut off your account until you’ve repaid your loan. So, you know, there are some limitations which is good. Still, you can connect it to a credit card and then max that out and then get a new credit card to connect it to and max that out. So I feel like it is kind of a little bit of a gateway into potential more higher interest debt.

[MUSIC TRANSITION]

ROB: When I thought of asking Jessica to participate in this episode of the podcast, I was really curious to hear what she would say about BNPL. She’s a younger demographic. I thought maybe she sees some good in this that I had missed out on. But I think I have to agree with Jessica’s take on all of this. Roma, what about you?

ROMA: Yeah, she seems right on to me. Putting off paying debt is in large part just about deferring the pain. It builds bad habits and in the hands of someone who’s struggling financially or might not be super literate, it can lead to trouble. You know, as with any kind of debt, you have to be careful with BNPL. I do not want to be reading press releases or assigning stories in the coming months and years about how many millennials have gotten into long term financial trouble because of BNPL.

Here are my 3 takeaways for this episode:

  • BNPL is designed to get you to spend more. So be careful when online shopping. Ask yourself if you really want or need this purchase. And don’t buy stuff you can’t afford.
  • If you use BNPL payments, read the fine print. Fees and costs are not always easy to find. As with any financial contract, be sure you know what commitment you are making. It could have consequences.
  • If you are a responsible borrower, which means you pay what you owe on time, use a credit card to build a good credit score. That will help you get low rates when you need to borrow money for things like a mortgage later in life.

[THEME MUSIC]

ROB: Thanks for listening to Stress Test. This show was produced by Amy Chyan and Zahra Khozema. Audio engineering and editing by Kyle Fulton. Our executive producer is Kiran Rana.

Thank you to guests Sarah, Jessica Moorhouse and Sara.

ROMA: If you like what you heard, give us a five star rating and review on Apple Podcasts.

Our next episode will look ahead at what the big personal finance trends will be in the next year! You don’t want to miss that one.

You can find Stress Test at Apple Podcasts, Google Play, Spotify or your favourite podcast app.

And find us at the Globe and Mail.com, where we cover all things financial.

Thanks for listening! And see you next week.