Stuff Digital Edition

Buy now, pay later traps kids in bad financial habits

Hannah McQueen

My teenage son asked me this week if he could buy a bike using a buy now, pay later (BNPL) scheme. I laughed – and said ‘‘no’’.

He asked why not. My reply was ‘‘that’s the fastest way to end up poor, my boy’’.

Spending money you don’t have on something you want now is a sketchy financial strategy. Being encouraged to do so is socially negligent.

Letting our young people sleepwalk into debt before they’ve ever had to make a meaningful financial decision is the quickest way to lock in a poverty mindset and set them on the road to financial failure.

Yet, schemes have now so firmly embedded themselves in the way young people are spending that ‘‘AfterPay’’ has entered common parlance as a verb – and their stranglehold is growing.

Like credit cards, BNPL schemes have been shown to prompt people to spend more or make purchases they otherwise wouldn’t have made.

I’m no great fan of credit cards either, but here’s the rub – BNPL schemes aren’t required to check that their customers can afford to repay the debt before approving the facility.

That’s because they don’t (technically) charge interest, so fall through the cracks in the legislation. That includes the recently beefed-up Credit Contracts and Consumer Finance Act, which has resulted in lenders scrutinising borrowers’ spending habits like never before, before lending them money.

The irony is that while the BNPL companies aren’t subject to those rules, the banks are now combing your statements for buy now, pay later transactions as a result of that legislation, because using them tells a story about your financial management, a story that affects your ability to borrow to buy a property.

Despite the absence of interest, just like credit cards you can end up paying more and getting behind if you overcommit yourself, or life intervenes with an unexpected bill while you’ve got several AfterPay transactions on the go.

AfterPay says that in Australia and New Zealand its top 10 per cent of consumers use the service more than 60 times per year, with each transaction being six weeks long. Multiple transactions at any one time increase the chances of consumers falling behind on their fortnightly repayments. Late fees can climb to (albeit, are capped at) 25 per cent of the purchase price.

So, it’s not a great way for our kids to learn about money management, but here’s the thing – AfterPay and fintech companies like them are only beginning their march into our financial affairs.

For starters, in Australia, AfterPay has announced you’ll now be able to use the service at bars and restaurants – which goes against even the most basic of financial principles that if you are going to borrow from tomorrow, make sure you’re buying something that lasts more than a day.

But it gets more interesting. AfterPay has just launched its app Money by AfterPay, which promises to help you manage your money, monitor your savings and ‘‘hack your spending habits’’. I’m sceptical that any organisation with a business model built on me borrowing to buy something is truly interested in helping me improve my financial habits.

Other new features include the ability to have a debit card attached to the account, and ‘‘Retro AfterPay’’ which allows you to retrospectively turn a transaction into an AfterPay payment. What that really means in practice is you can borrow against money you’ve already spent if you need that cash back – albeit in small amounts, for the time being.

As with most things, it’s not all bad. Some people will use AfterPay fairly harmlessly – perhaps never spending when they can’t afford to, and never incurring a single late payment fee.

But it’s clearly designed to target young people – just check out the number of emojis in the new app’s description. Young people already have a steep financial hill to climb with big student loans and high house prices.

AfterPay-type schemes encourage and enable them to spend more. They embed a mentality of instant gratification and leaving the consequences for future-you. Worse, they ensure young people form borrowing and spending habits before they’ve ever had the chance to form saving and investing habits.

The buy now, pay later sector has charged ahead and put down roots in our wallets – and our kids’ wallets. Regulators are struggling to catch up, and it’s high time they did.

Hannah McQueen is a financial adviser, chartered accountant, best-selling personal finance author and the founder of enable.me – financial strategy & coaching.

Four weeks ago – going into Lockdown 3.2. That first rush of freedom found me at the Salvation Army opshop, where my eyes lit up at the sight of a 1940s-50s china cabinet with leadlight doors. Close examination revealed a sticker ‘‘Yendells of Hamilton’’. So, not just a handsome piece of furniture but an artefact relating to a successful local business.

I remembered the Yendells Furnishings name from growing up in Hamilton, though whether it was their Victoria St store or their later one on Bryce St escapes me. What I didn’t know, was anything about the Yendells, but back in my securefrom-Covid retreat and with the help of the internet and the Hamilton Libraries Heritage Team, I am now better informed.

Yendells Furnishers Limited was established in Hamilton in 1937 by Jim (Arthur James) Yendell, his wife Dora and brothers Maurice (first name Francis) and Percy. Harold Fitzgerald was a shareholder-employee.

The Yendell family came from Devon. Mary Ann Yendell’s husband, Frederick, had died in 1915, leaving Mary with seven sons to bring up on her own, the youngest just five.

In 1924 they came to New Zealand as a nominated family group under the British Empire Settlement Act 1922, which provided support for families to come out to ‘‘the Dominion’’. Because of the economic slump, Mary felt they would have better opportunities here. Percy, came first and Mary and five other sons followed three months later – William stayed behind in Devon. By then the sons ranged in age from young teens to early 20s.

An article in the Waikato Times (July 25, 1953) details some of the story: in Mary’s own words ‘‘I didn’t know whether to go up the street or down the street to commence my new life. I decided that the thing to do was to go up’’ – whether she was having trouble with the Kiwi vernacular or speaking metaphorically is unclear. She bought part of a house in Cambridge and became a housekeeper on a farm. From the 1928 electoral roll we know that Mary moved to Myrtle St in Claudelands, Percy was a telegraph linesman, Joseph a pastry-cook in Te Awamutu; in 1935 Percy was a draper in Kaitaia, Maurice a draper’s assistant in Auckland, Jim a salesman in Hamilton.

When Jim died in 2004, Roy Burke wrote a long obituary for him, published in the Waikato Times – this details how he and Dora (nee Fear) set up the furnishings business. He first worked for Fow Cobb and Co, when as a sideline he and Dora made blinds.

With Yendells Furnishings established as a retail business, with his brothers’ help, they started a furniture factory, with products going all around New Zealand and to the US. The sideboard I saw had ‘‘5/52’’ in pencil on the sticker - possibly made in May 1952?

Yendells sold carpets, curtain and upholstery material, Chesterfield suites, bedding and other manchester, as well as

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2021-12-04T08:00:00.0000000Z

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