Gen Z and the New Layaway
In 2021, Walmart replaced its long running “layaway” program with the ‘buy now, pay later’ option with Affirm. For those unfamiliar with the layaway program, it's a payment option that allows you to pay for a purchase in multiple installments and then receive the item. This tends to be popular around the holiday season and for people on a budget. With a small down payment, these loans are interest free and the installments occur over a four-six week period (as long as your payments are on time). As of 2021, nearly 100,000 retailers were registered for these programs all over the world.
“During the pandemic, when creators needed to make money a lot of them used buy now pay later options for art equipment.”
When ‘buy now, pay later’ apps like Klarna, Affirm, and Afterpay became popular, my friends and I mainly used it to buy clothes, fun material items and electronics. Although these material items were popular amongst us, the sites could also be utilized for business purposes. During the pandemic, when creators needed to make money a lot of them used buy now pay later options for art equipment such as canvases, cameras, and gear to build studios or workspaces to create in. This allowed the items to pay for themselves as time went on without spending too much investment at the beginning. So in addition to buying new ways to entertain yourself, it's also used to kick start careers and fuel creativity.
The utilization of services doesn't stop there, with sites like Boompay you can even split your rent and bills into installments to avoid late penalties. Boompay also allows you to build credit with on-time payments which is a feature that can be expected to be worked into more services like these in the future. This can be useful to people paying for their first apartment or house in order to make sure they pay their rent on time in addition to building credit. Speaking from personal experience, I find sites like these are usually used by people in the age group 19-25.
“Remember when using these services, these are still loans and forms of credit.”
As of August 2021, 16.2 million people use Afterpay according to The Sydney Morning Herald. While sites/apps like this only continue to grow, something to remember when using these services is these are still loans and forms of credit. It's very easy to get caught up in the fact that you don't have to make the purchase in full to the point where you are paying high amounts per installment. Now while there are pros to Afterpay, many people view the thought of Afterpay and services alike as encouraging debt or “another bill”. One purchase turns to two, which turns to three and so on. While these are valid points, most of these services do not allow you to make additional purchases if you miss a certain number of payments which could come across to some as a credit limit.
“A quick interview with six of my friends, I found out that while four of them use afterpay, two refuse.”
So what is the afterpay experience like to the daily consumer? Going to a site, seeing an item you're interested in and when you see the total price it's only ¼ of the actual price that you would pay that day. Pretty easy way to get drawn in and after a quick interview with six of my friends, I found out that while four of them use afterpay, two refuse due to the saying “If you can't buy it twice you shouldn't buy it yet”. This led to a very valid point being brought up, what happens if you make too many purchases and can't afford to pay all of the installments? Multiple solutions were thrown out and agreed to by the group such as not making too many purchases at once, creating a spending limit for themselves, or just factoring in the extra cost and using a side hustle to help finance their purchases.
“They use it whenever it’s available because it helps them save money.”
When asked, “Do you use afterpay whenever it's available or only when you need to?”, the friends that use it say they use it whenever it's available because it helps save money and if they have the money, they just put it to the side for the installments. So while some look at these services as encouraging debt, others may look at it as financial safety or safe spending.
The Takeaway
The quick rise of ‘buy now, pay later’ services like AfterPay have created a fear around the youth adoption of debt-based services. As Gen Z faces financial insecurity, we wanted to find out how they viewed these convenient albeit debt-driving services. Most of the associates surveyed who use ‘buy now, pay later’ do so as a form of financial security even when they can pay for an item in full. Majority view ‘buy now, pay later’ as a convenience versus a dangerous method to amass debt, showcasing that Gen Z values financial flexibility over risk reduction.