Young Aussies are being encouraged to save now and buy later, with new research suggesting many have experienced buyer's remorse when using unregulated instalment plans.
More than a quarter of 16-34-year-olds surveyed by Up Bank said they regretted purchases they made using convenient buy now, pay later (BNPL) platforms.
Additionally, almost 30 per cent revealed that paying for purchases in instalments made them feel stressed.
What are BNPL platforms?
The services offer payment options that allow consumers to make purchases and pay them off in instalments over six weeks or more.
And, unlike traditional lay-by options, consumers using BNPL platforms receive their purchases immediately.
Why buyers should be wary
A former user of BNPL platforms told Yahoo Finance the multiple repayments were taking a toll on his mental health.
“It didn’t feel like real money and I was living above my means,” Nile O’Meally said.
The 26-year-old remembered having just $200 left out of his fortnightly pay after servicing all of his BNPL bills.
“It was super easy to make impulse purchases and it put me into a lot of debt,” he said.
“Living pay cheque to pay cheque is not a nice feeling.”
Up Bank’s data suggested around two in five young Aussies had had multiple purchases activated at once, and one in four conceded they had used the services despite feeling worried they may not be able to afford the repayments.
Tom Abourizk, a policy officer at the Consumer Action Law Centre, said it was really common for people to have multiple BNPL accounts, and often customers struggled to keep up with and keep track of their payments.
“I’m sure BNPL services are used responsibly by many people but what we see is that it often makes someone’s financial situation more difficult and more complex,” Abourizk told Yahoo Finance.
“BNPL encourages people to buy things and think about the consequences later in terms of finances.”
Abourizk raised concerns about BNPL platforms being advertised as budgeting tools.
“It’s a big concern to see BNPL platforms being marketed as something other than credit when, in reality, it is credit,” he said.
Wage advance warning
He also warned against increasingly popular “pay advance” services.
“It’s another product that avoids credit laws and operates in an unregulated space which makes them quite dangerous,” Abourizk said.
Up CEO Xavier Shay told Yahoo Finance he was struck by how BNPL hit people emotionally, not just financially.
“Money feels really different now compared to when your parents got paid by cheque and shops were closed on Sundays,” he said.
New alternative launched
The research by Up Bank also found more than half of the millennials surveyed would be interested in a savings-based alternative to these platforms.
In response, Up has launched Maybuy, which aims to support better financial habits among young Aussies.
“Maybuy is Up’s answer to the question: 'When are you going to build a BNPL?'" Shay said.
"We’re doing: 'How to get the thing you want', but we’re doing it our way."
The product creates an automated savings plan for individual items that customers find when shopping online.
Once the goal is reached, they’ll be given an opportunity to purchase the item or reconsider and keep the money they’ve put aside for something else.
“You can change your mind whenever you like and send money back into your spending account, or use it to get something else you decide you want more,” Shay explained.
Shay admitted it would be tough to change consumers' habits and challenge the appeal of instant gratification.
“We’re giving this a fresh go and we think this is going to be a really appealing option for people who just want to feel good about their money," he said.
Abourizk agreed a savings product might be a "safer option" for consumers.