"Surge in 'Buy Now, Pay Later' arrangements observed among younger generations grappling with financial obligations, potentially leading to overspending issues for some."
The use of Buy Now, Pay Later (BNPL) services is transforming the financial habits of Canadians, particularly among young people and Generation Z. These services, which allow consumers to pay for purchases in instalments without a credit check or only a soft credit check, are becoming increasingly popular.
## Impact on Spending Habits
One of the most significant effects of BNPL services is their influence on spending habits. Research suggests that consumers, including young Canadians, tend to increase their spending when using BNPL options. This is due to a 'flypaper effect' where a larger portion of earnings is spent on retail items [2]. Furthermore, the convenience and ease of BNPL at checkout can lead to more impulse purchases [1][2].
## Financial Management and Credit
BNPL services can help young Canadians build their credit history responsibly, as some providers report on-time payments to credit bureaus. This is particularly beneficial for Gen Z and Millennials who are looking to establish a positive credit profile [4]. Additionally, BNPL allows consumers to budget and avoid surprise expenses on credit card statements [4].
## Risks and Concerns
Despite the benefits, BNPL services also pose risks. They can create a false sense of financial security, encouraging young people to spend money they might not have, potentially leading to financial strain [2]. Furthermore, in Canada, some BNPL data is starting to be included in credit reports, which can affect credit scores [5].
## Conclusion
While BNPL offers convenience and can help build credit, it is essential for young Canadians to be mindful of the risks and use these services responsibly to avoid financial pitfalls. Afterpay states that 96% of Canadian users are diligent borrowers, while Affirm reported that the share of customers who missed a payment on a monthly instalment loan by 30 days or more was just 2.4% [3].
Canadians are using BNPL services like Klarna, Sezzle, Afterpay, and Affirm to purchase various items, including concert tickets, groceries, sex toys, and makeup. The Canadian BNPL sector is expected to almost double its 2024 value of $6.69 billion (U.S.) by the end of 2030, reaching approximately $11.32 billion [6]. The number of Canadians using BNPL services has significantly increased, with the share of users jumping from 9% in 2022 to 25% in 2024 [6].
Retailers see significantly higher sales and profitability with BNPL compared to credit cards, with a recent study showing BNPL increasing sales by 20% at checkout, driven by low-creditworthiness consumers [7]. However, a study by American firm LendingTree found that 41% of BNPL users reported paying late last year, with 76% of those people being late by only a week or so [8]. Another study found that BNPL increases spending and puts consumers at risk of losing control of their debt, with nearly half of American users reporting they've regretted financing at least one purchase with BNPL [9].
BNPL services are available at checkouts across the nation, partnered with popular retailers such as Ticketmaster, Sephora, Amazon, and Costco. It is crucial for young Canadians to approach these services with caution, understanding both their benefits and potential risks to make informed financial decisions.
References: [1] https://www.cbc.ca/news/business/buy-now-pay-later-services-canada-1.6176039 [2] https://www.thestar.com/business/2021/11/08/buy-now-pay-later-services-are-popular-with-young-canadians-but-they-come-with-risks.html [3] https://www.affirm.com/about/media/press-releases/affirm-announces-record-growth-in-q3-2021-as-the-company-continues-to-transform-the-way-consumers-shop-and-pay [4] https://www.cbc.ca/news/business/buy-now-pay-later-services-canada-1.6176039 [5] https://www.theglobeandmail.com/investing/personal-finance/credit/article-buy-now-pay-later-services-can-boost-your-credit-score-if/ [6] https://www.moneysense.ca/save/borrowing/buy-now-pay-later-services-are-booming-in-canada/ [7] https://www.retailtouchpoints.com/retail-technology/buy-now-pay-later-services-boosting-retail-sales-and-profitability [8] https://www.cnbc.com/2021/11/19/buy-now-pay-later-services-are-popular-but-the-debt-can-add-up-quickly.html [9] https://www.cnbc.com/2021/12/01/buy-now-pay-later-services-are-popular-but-the-debt-can-add-up-quickly.html
- The increase in BNPL usage among Canadians, particularly young people, signifies a shift in personal-finance habits towards a more dynamic lifestyle and shopping approach, as seen in the media.
- As BNPL services gain traction in the Canadian market, they are being employed to purchase a wide range of goods, from groceries to technology, indicating a broad impact on the nation's economy and general-news landscape.
- The Toronto Stock Exchange, being a hub for financial institutions, might witness an influx of businesses specializing in BNPL, alters the city's tech and business landscape.
- The popularity of BNPL services in Canada can potentially influence the media's coverage of lifestyle, personal-finance, and general-news stories, highlighting the shift in consumer behavior in these domains.
- As BNPL data becomes more integrated into credit reports, the financing industry in Canada may undergo transformative changes, impacting the financial health of both consumers and businesses involved.
- In the future, the media can play a vital role in educating Canadians on the proper use and potential risks of BNPL services, ensuring responsible financial management and promoting informed decision-making among young people and Generation Z.
