As someone who’s not a rampant Twitter user, I sent out a tweet a few weeks ago after reading about a new startup, BeforePay, that allows people to get access to money before they have earned it. This was the tweet. The sentiment certainly seemed to resonate because it received just under 2,000 impressions in the Twittersphere.
Just to clarify, we’re not lamenting startups like this. In fact, they have an important and innovative service to offer the market, but it does make you wonder if younger generations are grasping the concept of consumer debt? I’ve expressed concern about the “want it now” generation before and how easily young people on low salaries can access credit that racks up debt as instantly as their desire for goods and services they can’t afford. Perhaps the best balance lies somewhere in the middle but it starts with a clear understanding of the impacts of debt, and the risks of getting in too deep that result in paying much more for something just for the satisfaction of having it now, over the traditional mode of waiting and saving.
And if you think it’s being alarmist, Smart Company recently reported that 20% of AfterPay customers were actually skipping meals to keep up with payments. So the likes of BeforePay could lead to a scenario where a young person gets access to funds they haven’t earned and then uses it to purchase goods worth four times the value of that amount. To us, and I am sure many advisers, this is a scary scenario.
We’ve seen AfterPay and Zip come under increased scrutiny by ASIC due to the impact that BNPL is having on those who are struggling to keep up with payments. This plays into the conversation around how BNPL products should be regulated, and whether they’re good for the consumer or not. In a report issued by ASIC it was noted that there are regulatory changes on the way, with design and distribution rules coming into effect in October 2021. Until now, the industry has been engaged in self-regulation, so only time will give us an indication of its impact.
When it comes to basic household budget management and how to handle consumer debt through payday lenders, credit cards and the new burgeoning BNPL space, there doesn’t seem to be much advice readily available to consumers; simply because there is not much in it for Advisers. Most of the debt advice our industry engages in is much further up the scale with debt refinancing, where there are more services and revenue on offer for an adviser.
As with any kind of change of behaviour or perception, greater education from the formative years is needed to develop and instill an understanding of cause and impact; in this case, poor consumer debt management. We recommend, and certainly would prefer to see education play a key role in changing money management behaviour ahead of regulators stepping in and protecting consumers who seemingly can’t help themselves.