Buy Now, Regret Later? New Financing Option Faces Skeptics
Beyond the Headlines: Personal finance news and research you may have missed
If you have been following financial news lately, it’s all about the state of the economic rebound. There’s the retail sales boom—fueled by returning business at restaurants and bars—new signs of an accelerating recovery in the job market, and yes, more optimism among households, all thanks to COVID-19 vaccinations helping to re-open the economy.
And then there is the latest from the government: On one side, a potentially significant hike in the capital gains tax rate for high-end earners, on the other, stricter enforcement of the temporary ban on evicting tenants who can’t pay their rent because of pandemic hardships. Plus, everyone has an opinion on when the Federal Reserve will pull back on its easy-money policies and begin to set benchmark interest rates at more normal levels again.
But here’s what you may not have heard: Did you know that some people aren’t jumping on the “buy now, pay later” financing bandwagon out of sheer mistrust? Or that keeping interest rates as low as the Fed has may be doing our economy more harm than good?
To reach beyond the biggest headlines, we scoured the latest research, surveys, studies, and commentary to bring you the most interesting and relevant personal finance news you may have missed.
What We Found
Buy Now, Regret Later?
“Buy now, pay later” financing is increasingly popular these days, with companies like Affirm, Klarna, AfterPay, Amazon and PayPal making a name for themselves with customers who want to spread payments over time without incurring credit card debt. Often this emerging payment model involves a short-term interest-free installment loan where fees and/or interest are assessed if you don’t pay on time.
But a new survey of U.S. consumers shows attitudes about so-called BNPL are complicated, and older potential customers—the biggest untapped market—are likely to be the most wary.
Sixty-one percent of those surveyed said they’d never tried a BNPL option, and while lack of familiarity and being happy with credit cards or cash were among the reasons, some were worried about accumulating debt, or feared being ripped off or damaging their credit score.
Even some people who have used BNPL services don’t completely trust the companies, according to the survey of 1,548 U.S. consumers taken in the first quarter. While 91% of BNPL users polled were confident their service would function, only 81% trusted the service not to take advantage of them.
“Whereas Millennials and Gen Z may view Buy Now, Pay Later as a mostly neutral tool (and maybe even a generous new ‘friend’), Gen X and Baby Boomers are more likely to view it as an assault on their values – a vice for the irresponsible and the financially desperate,” The Strawhecker Group, a payments industry consulting company that conducted the survey, wrote in an accompanying report released April 12.
What’s more, bad press about people going into debt or damaging their credit scores means that at some point even younger consumers could “begin viewing their helpful new app as exploitative and predatory.”
Still, of the 39% who had tried at least one BNPL option, some said they felt more financially responsible using them. And others noted they chose them to avoid hidden fees with credit cards.
The Case Against Ultra-Low Interest Rates
During the pandemic, the Federal Reserve has kept money flowing into households and the economy by maintaining its benchmark interest rate at nearly zero. This monetary policy is meant to help restore lost jobs and the broader economy, and as the recovery gains steam, experts are watching for signs that the U.S. central bank might begin to shift gears.
But ultra-low interest rates may be doing more harm than good, economist William White says in a working paper published last month by the Institute for New Economic Thinking.
White, a former economic adviser at the Bank for International Settlements, has a number of arguments against this central bank policy. First, while lower borrowing costs do initially accomplish their goal of spurring spending, much of it is on “unproductive purchases” by both households and corporations that only wind up increasing the debt burden.
Second, low interest rates can actually destabilize financial markets and the institutions surrounding them, either through inflated prices, encouraging fund managers to take on riskier investments, or hindering how banks and lenders are supposed to do business, White argues.
And then there’s the exit problem. Once central banks lower interest rates, it’s very hard to tighten the flow of easy money.
“Each cycle of monetary easing contributes to a buildup of undesired side effects that raises the likelihood of future instability,” White writes. “Central banks are then lured into a ‘debt trap’ where they refrain from tightening, to avoid triggering the crisis that they wish to avoid, but that restraint only makes the underlying problems worse.”
A She-cession (Almost) Everywhere
It’s been widely asserted that the pandemic hit working women worse than men in the U.S., earning the 2020 recession the term “she-cession.” Not only do women tend to work more in service industries that were hit harder, but school closures created a childcare burden that disproportionately impacted women, forcing some to drop out of the workforce.
A group of economists from American and German universities conducted a study of these dynamics, analyzing not only how things changed from the fourth quarter of 2019 through the first half of 2020 in the U.S., but in 27 other countries. Not surprisingly, they discovered a trend, finding that the women’s labor supply fell more than men’s in 18 or 19 of those countries (depending on the measure used.) What’s more, in all but two of the 28 countries, women were hurt more than what would be predicted, based on patterns from previous “mancessions.”
“Overall, we conclude that the unusually large impact of the pandemic recession on working women is a common feature among a large set of economies, and a key distinction between this and earlier recessions,” the economists wrote in a working paper published this month by the National Bureau of Economic Research.
Interestingly, each country saw a varying degree of impact, and some were able to mitigate the damage more than others. For example, Sweden, where school closures were more limited, was one of the few countries where the number of hours women worked actually increased relative to men’s even though their employment levels declined relative to men’s.
And in the Netherlands and Germany, it was the opposite: There was no gender gap in employment but a measure of women’s worked hours fell more than men’s, suggesting flexible furlough schemes and/or additional parental leave enabled women to reduce their hours while holding on to their jobs.
Work-Linked Couples Are Happier With Jobs, Income, Study Finds
Office romances are often frowned upon because of the potential for workplace conflicts of interest, but a new study suggests there may be upsides to sharing an occupation or field with your partner, both for the couple and the employer.
According to researchers in New Zealand and Britain who studied more than 30 years of data from a socio-economic survey of the German population, couples who work in the same job or industry are more satisfied with life as well as their income and job.
“Power couples” who work in the same field can help each other climb the career ladder, keep and find jobs, network, and share resources, the researchers said in a paper published last month by the IZA Institute of Labor Economics in Germany. Plus, employers may find recruiting couples beneficial if a relocation is required.
The study, which analyzed data from 1985 to 2018, found that people with a college degree, where the potential for career earnings growth may be steep, saw the biggest upside to being work-linked.
The study didn’t investigate whether work-linked couples working in the same place were any happier than just those in the same field or type of job.