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The latest in financial engineering has brought a new way to pay for things you can’t actually afford.

A growing number of retailers are offering customers the choice of paying by installments, even for small purchases. A typical payment plan for smaller purchases like cosmetics or clothes would be a series of four bi-weekly payments, with no interest charges or fees. If you pay on time, your payments might simply be the cost of your purchase divided by the number of installments you make.

These instalment plans are available to retailers through companies like Sezzle, Afterpay, Uplift, PayBright, Affirm, Klarna, Flexiti and QuadPay. You can read all about the rise of these digital payment options in this recent Report on Business story. Still fairly new, they’re finding a market.

If you use this service carefully, it’s probably the retailer who covers the cost. Retailers pay commissions to buy now, pay later services, which can be twice those paid on credit card transactions or more. The offset is that customers using buy now, pay later tend to spend more. And so we come to the problem with this cool new way to pay for stuff. It encourages people to buy things they can’t afford.

Why else would you buy now and pay later – to keep money around so you can earn interest in your chequing account? To trade stocks for what you hope will be a quick profit? There’s no good reason to delay paying for something when you have the money.

We already have a buy now, pay later option that works well when used responsibly. It’s called the credit card and you generally get a minimum interest-free period of 21 days on your new purchases, provided you pay in full by the due date on your statement. Credit card interest rates are punishingly high at around 13 per cent for low-rate cards and 20 per cent for regular cards. Are buy now, pay later services easier on people who don’t pay on time? It’s hard to tell because of their poor disclosure, but you should expect fees or interest rate charges of some sort.

One of the biggest money lies we tell ourselves is that, while we don’t have the money to pay for something today, we will in the near future. And then the car breaks down, or your pandemic puppy swallows something nasty and has to go to the vet. There goes the money you were going to use for the purchase you couldn’t afford at the time.


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Rob’s personal finance reading list

Get ready for ‘revenge travel’

When I saw this term used in an article about future travel intentions, it resonated. Among those people who have stayed financially secure in the pandemic, travel keeps coming up as one of the things they miss most.

Canadian real estate meets its match as an investment

Houses are an investment, right? Check out the chart in this blog post to see how real estate prices have compared to various stocks and stock indexes.

Investors, here’s how much Canada you need

A portfolio manager on how much weight investors should give to Canadian, U.S. and international stocks. Probably not as much Canadian content as your expected.

Closing the racial wealth gap

Fewer people in the racialized community are investing compared to the broader population. Here’s a thorough, well-reported explanation of why this is happening, with suggestions on how to move forward.


Ask Rob

Q: What are your thoughts on segregated funds? Our financial adviser had us transfer to this and now, after reading deeper into the subject, it doesn’t seem like it was the right idea. I am 55 and my spouse is 58.

A: Here’s my latest column on seg funds. Consider them for their estate-planning attributes and creditor protection rather than as a safe way to invest.

Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.


Today’s financial tool

Feeling overwhelmed, anxious or intimidated about investing? Some suggestions on how to overcome emotional investing barriers can be found on the InvestRight website run by the B.C. Securities Commission.


The money-free zone

The late indie songwriter David Berman was a musician’s musician and his songs have been widely covered. Here’s a tribute called Approaching Perfection that was put together after Mr. Berman’s death in 2019. If you listen to one song, make it the version of Random Rules by Fortuny Roche.


Tweet of the week

The term Pretend Investor Disease was coined by financial planner Carl Richards, who you might know for his Sketch Guy column in The New York Times. It’s a tongue-in-cheek way of looking at the stock trading some investors are doing these days.


ICYMI

What I’ve been writing about
  • In case this is your first rodeo, what’s happening with housing and stocks is not normal
  • Bonds are getting hit hard – don’t be smug if you hold dividend stocks instead
  • 2021 ETF Buyer’s Guide: Best Canadian bond funds (for Globe Unlimited subscribers)

More Rob Carrick and money coverage

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