Is Afterpay a good way of teaching young adults about the concept of credit?

Is Afterpay a good way of teaching young adults about the concept of credit?

Afterpay is arguably the biggest ‘buy now pay later’ financial technology in the world, but is it setting up young adults to fall into debt? (Image Source: Product of Tasmania)

By Alexandra Bull|@ally_bull19

Afterpay is currently the largest ‘buy now and pay later’ company in the world, with over seven million users as recorded in February 2020.

Founded in 2015 by Australians Nicholas Molnar and Anthony Eisen, the company recorded a revenue of approximately $251 million (AUD) as of June 2019.

In 2017, Afterpay expanded from an online service to in-store use, specifically at retail locations that use Afterpay as a payment service

With no interest charged and two weeks in-between payments, Afterpay seems like an attractive service for those who, at times, are likely to find themselves a bit short on change.

Young adults, especially uni students, are likely to fall into this category, what with the expenses of study, socialising, rent and more.

A number of other financial technology companies, such as Laybuy and Zip, also attract users with a buy-now-pay-later system.

Generally speaking, credit cards are not as popular amongst the young people of today, which is why Afterpay may be the perfect way to introduce to them the idea of credit in a non-credit way.

However, is Afterpay a good financial option for young adults who are wanting an easy payment option, or is it a financial trap?

The short answer is: most likely the latter.

While the idea of Afterpay may seem enticing to begin with, the small-increment payments give users the illusion that they can afford more than they actually can.

Basically, this method of payment makes it seem like you have more money than you actually do.

To make matters worse, a $10-dollar late fee is applied if you miss a payment, with another $7 fee added each week after a payment is

If not careful, Afterpay users may end up accumulating a small amount of debt.

Due to this, many people are saying that the buy-now-pay-later option needs to be regulated, as Afterpay is a form of credit, much like credit cards, which are regulated.

Currently, Afterpay is not regulated as a credit provider for the purposes of the National Consumer Credit Protection Act 2009, as it does not impose any charge in the use of its service; that is, users must only pay the original purchase price of an item in fortnightly instalments.

However, in the long-term, regulating the service could make it more financially viable for its users.

Afterpay’s Chief Executive, Anthony Eisen, said that this regulatory uncertainty slowed overseas growth, where the financial tech company launched in the United States in 2018.

One factor that contributed to this may be the fact that mortgage brokers and credit score providers have advised people to avoid using Afterpay if they are planning to make a home loan application.

While many young people, especially those in university, may not be applying for a home loan anytime soon, they must remember that the use and abuse of Afterpay is something banks are now taking into account when assessing potential clients for home loans.

There is also an argument that Afterpay targets young women and sends them into cycles of debt even after they have stopped using the service.

As someone who has been using Afterpay for over two years, this statement is incredibly accurate.

As a young female student, the idea of only having to pay a quarter of the item’s full price up-front initially seemed relatively attractive.

However, I soon realised how easy it is to accrue debt while using the service, especially when I had multiple live purchases, each with their own payments and due dates to be met.

This is very easy to do, due to the multitude of companies now offering the service.

You can buy the dress you have been longing for with only having to pay for a quarter up front or book flights for the holiday you have been planning with your friends, without even thinking about having to pay for the other three quarters of your purchases.

When used properly, Afterpay is an excellent service, but it still requires regulation, as even the most financially vigilant can find themselves falling down the slippery slope of having one un-paid payment to suddenly having five.

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