As inflation surges and supermarket prices rise, many Americans are turning to "buy now, pay later" (BNPL) applications to cope with their financial burdens. Gracie Williams, a South Carolina librarian, finds herself struggling to allocate her $2,100 take-home income and her late father's retirement benefits between her ailing mother and younger brother. With mounting medical expenses, house and car payments, and other bills, there is little left for groceries, leaving Williams to feed her family in installments.
In this challenging economic climate, BNPL services like Klarna have become a lifeline for Williams and many others. Initially designed to finance expensive items like Pelotons and laptops, these services have seen a significant uptick, with Adobe Analytics reporting a 40% increase in their use for groceries in the first two months of 2023.
BNPL services have played a crucial role in providing immediate liquidity to cash-strapped individuals, particularly since the pandemic-induced job losses. Even as the economy has shown signs of recovery, escalating inflation has caused the cost of essential goods like groceries, transportation, housing, and healthcare to soar. As a result, industry experts predict that more Americans will turn to BNPL services to cover their food and school supply expenses.
Low-income households, earning less than $50,000 a year, have already spent most of their pandemic-era savings and stimulus funds. Many are concerned about back-to-school and Christmas shopping, while retailers like Target, Amazon, and Walmart are offering huge July deals to attract customers.
The Federal Reserve has raised interest rates aggressively to curb inflation, but prices remain high. The average family spent $973 on groceries in June, a 3.5% increase from the previous year, according to the U.S. Department of Agriculture.
The rising grocery bills add additional financial strain. BNPL services, such as Affirm, offer some relief by allowing customers to budget for their purchases. However, experts warn that while BNPL programs may provide short-term benefits, they also come with immediate drawbacks. Consumers might overpay when they know they can delay full payment. Additionally, longer-term partnerships can be detrimental, circumventing consumer protection laws and potentially harming credit ratings in the event of missed payments.
Despite these concerns, BNPL services continue to attract users, especially among those with bad credit or limited borrowing history. The unregulated nature of these services raises worries among consumer watchdogs, as companies avoid certain consumer protection laws by offering installment payments.
As Americans grapple with economic challenges, BNPL services offer a flexible solution to meet immediate needs. Still, financial caution and responsible usage are necessary to avoid falling into debt traps and financial instability in the long run. As inflation persists, it remains crucial for individuals to assess their financial circumstances carefully and make informed choices while utilizing such services to navigate these uncertain times.