Afterpay or Afterdept? Breeding a Generation of Borrowers

Prada, Gucci, Chanel, Vuitton. All one syllable names that we associate with status, Beverly Hills and “money, money, money” (I can hear that catchy ABBA beat playing in my head now). Brands I’m sure that we all have looked upon in awe. Thinking to ourselves, that maybe one day if we work hard enough or save enough money we might be able to have a little piece of luxury too.

But what if I told you, you could have that designer bag you want right now? What if I told you, it’s okay if you don’t have the money? This isn’t some scam. It’s a reality with Afterpay.

Online lenders such as Afterpay and Zip-Pay have allowed consumers everywhere to “buy now, pay later”- as their slogan suggests.  An alternative payment method for customers, adopted by online and in-store retailers and more recently airlines, Afterpay allows customers to purchase and receive their items without paying a cent.  A simple sign up to the technology, with the customer’s payment details, approves the individual to start shopping. Fortnightly payments are then deducted from the individual’s account until the owing sum is paid. Because of these money lending companies, now we call can have a taste of a luxury, without bearing the immediate expense.

 

 

But is it that easy? Concerns have been raised from scholars and industry experts about the effects of such a technology on millennials and low-income earners.  As more and more millennials begin to rack up after pay debts, many fear that the initial positives of the platform mask the potential ramifications of the technology. Is this ‘lending’ culture breeding a generation of people who spend beyond their means?

The most prominent concern of Afterpay is the almost instantaneous application and approval process. Unlike other credit providers which often entail tedious application processes involving employment records and pay cheques, often within a 2-4-week perusal period- Afterpay allows you to sign up and spend within a matter of minutes. It is this that makes Afterpay both an attractive and dangerous payment alternative for younger generations.  Sure, for those times when all your bills are due and it’s your boyfriend’s birthday is in the same week- Afterpay looks real good. But when those emergency purchases turn into the weekly ‘TREAT YO SELF’ splurge, an unhealthy spending pattern can begin.

Quoting Pedersen- McKinnon, “The problem is that Afterpay can make the whole “money” part of a transaction an afterthought. There are no credit checks, contracts or disclosed spending limits.” The ease and immediacy of the program encourages quick, spur of the moment spending, with no thought to prior commitments or obligations.  For young, inexperienced individuals who may not know how to manage their finances, but are still very much involved in consumer culture- Afterpay takes full advantage.

According to Afterpay managing director Nick Molnar, in November of 2016, there were 1500 businesses transacting $300 million of annualised sales via Afterpay. 70% of this revenue owed to millennials.

“Millennials are the largest demographic in Australia and Afterpay’s momentum has been driven by a growing customer base of over 650,000 active users, of which over 70 percent are millennials” – Nick Molnar, Afterpay Managing Director.

It is clear here that millennials are big business, fueling the ‘pay later’ economy. But is Afterpay just another big bad dog taking advantage of the naive?

Quoting Emmerton, “Millennials were found to have the worst credit card habits in a recent study, with nearly 2 in 3 millennial cardholders mismanaging their credit card, and 48% admit to carrying a lingering balance”. It seems that even those of the younger generation who are approved for credit cards fail to understand its ramifications and payment structure fully. Now consider the effects of Afterpay. A company that requires no prior finance details or in fact evidence of capital to start using its service. Afterpay is establishing and encouraging a culture of borrowing and owing. Where people can purchase items outside their pay bracket, over and over.  Furthermore, something that is not heavily advertised by the company is that Afterpay debt can affect your credit score.

“Afterpay will report any negative activity on your Afterpay Account (including late payments, missed payments, defaults or chargebacks) to credit reporting agencies”- Afterpay

As a self-confessed shopaholic, that thinks that buying the new Kylie lip kit is essential and having $14 acai bowls for breakfast is reasonable, I am not one to lecture on saving pennies. However, as a result of a few Afterpay regrets myself, I have become more aware of the ploys that these credit providers use, to take advantage of our wallets. 20% off Afterpay launch sale? Sounds familiar? Yep that’s one!

In this fast-paced digital society, it can be very easy to be caught up in the Instagram world, where those you are following travel to Mykonos and wear the latest Gucci slides. Afterpay can seem like the easy solution in achieving that life. And for some people, maybe it is. All I advise through my experience is save your money, and spend your own money. Either way, it will leave your bank account a little worse for wear, but spending a week or two on baked beans is the better alternative than having your credit score ruined for good.

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