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How can Buy Now, Pay Later Hurt Retirement?

Point of sale installment plans seem to be everywhere. Companies like Affirm, Apple, Afterpay, Zip, and Paypal are just a few of the BNPL companies out there. The services are definitely more attractive with young customers as Gen Z is the highest users of these services at 58% and baby boomers the lowest at 28%. Common BNPL charges were for relatively small items like clothing (50%), shoes (29%) and accessories (22%).

Unfortunately according to a Lendingtree study, 70% of BNPL users admitted making frivolous purchases. While BNPL can be cheaper than credit cards and personal loans, they can also incentivize those with thin or bad credit to make unnecessary purchases. Another hang up is that 42% of BNPL users had to make a late payment and 25% were subsequently charged a fee or interest.

From the perspective of a retirement plan advisor, another concern is the crowding out effect. The more commitments a plan participant has on their current income, the less likely they are to save for their future selves in retirement. BNPL can distort affordability of mundane items until multiple small purchases have suddenly created a significant burden on one's income. Debt is the number one barrier to retirement savings and other long-term financial milestones such as buying a home or pursuing higher education.

Prior to jumping into the BNPL pool, maybe make sure you are capable of swimming first.

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