It's a growing trend across the ditch – Americans are increasingly turning to 'buy now, pay later' (BNPL) apps to cover essential expenses like groceries and utility bills. While offering a seemingly easy solution to tight budgets, experts are urging caution. NBC News' Christine Romans recently reported on this phenomenon, with insights from University of Michigan Professor of Economics and Public Policy, Justin Wolfers, and Faiz Shakir.

The rising cost of living is hitting households hard, and for some, BNPL apps offer a lifeline. These apps, like Afterpay, Klarna, and Affirm, allow users to split purchases into smaller, interest-free installments. The appeal is obvious: you can buy what you need *now* and pay for it over time, without the immediate hit to your bank account. This is particularly attractive for everyday necessities like food and power bills, which are becoming increasingly burdensome for many families.

Professor Wolfers highlights that BNPL is essentially a form of credit, but often presented in a less intimidating way than traditional loans or credit cards. This can lead to overspending and accumulating debt, especially for those already struggling financially. The ease of use and the lack of upfront fees can mask the potential for long-term financial strain.

The Risks: A Word of Warning for Kiwis

While BNPL apps can be helpful in certain situations, it’s crucial to understand the potential downsides. Here's what Kiwis should be aware of, drawing lessons from the American experience:

• Late Fees: While interest-free, many BNPL apps charge late fees if you miss a payment. These fees can quickly add up, negating any initial savings.
• Impact on Credit Score: Increasingly, BNPL providers are reporting payment activity to credit bureaus. Missed payments can negatively impact your credit score, making it harder to secure loans or credit in the future.
• Debt Accumulation: The ease of using BNPL can lead to impulsive purchases and a cycle of debt. It's important to budget carefully and avoid overspending.
• Multiple Apps: Many users are spreading their spending across multiple BNPL apps, which can make it difficult to track repayments and manage finances effectively.

Is BNPL Right for You?

BNPL apps can be a useful tool for managing expenses if used responsibly. Consider these questions before signing up:

• Can you comfortably afford the repayments?
• Are you only using BNPL for essential purchases?
• Have you compared the terms and conditions of different apps?

The American experience serves as a valuable lesson for Kiwis. While BNPL apps offer a convenient way to manage expenses, it's essential to approach them with caution and a clear understanding of the potential risks. Responsible financial planning and budgeting remain the best strategies for long-term financial stability.

Faiz Shakir's Perspective: Faiz Shakir emphasized the broader economic context driving this trend, highlighting the pressures on American families and the need for greater financial literacy and support.