We are in a time where you can finance just about anything. The concept of "buy now and pay later" is getting extremely popular. In today's episode I discuss how this credit is essentially keeping us broke. If we are serious about building generational wealth and improving our financial circumstances - we need to do a better job with our spending habits.
Let's connect on social media:
Instagram: https://www.instagram.com/bellascreditcorner
YouTube: https://www.youtube.com/c/BellasCreditCorner
Website: https://www.bellascreditcorner.com
Your Financial Transformation Starts Here: https://stan.store/BellaJones
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If you are on Clubhouse and want to connect you can use this link so you can follow me. https://www.joinclubhouse.com/@bellajones. I do have a club called "Financial Freedom for Women of Color" and I do host rooms on a weekly basis where we talk about various topics related to financial literacy.
We are in a time where you can finance just about anything. The concept of "buy now and pay later" is getting extremely popular. In today's episode I discuss how this credit is essentially keeping us broke. If we are serious about building generational wealth and improving our financial circumstances - we need to do a better job with our spending habits.
Let's connect on social media:
Instagram: https://www.instagram.com/bellascreditcorner
YouTube: https://www.youtube.com/c/BellasCreditCorner
Website: https://www.bellascreditcorner.com
Your Financial Transformation Starts Here: https://stan.store/BellaJones
Sign up with WeBull and get free stock(s) - click here to learn more
Sign up with RobinHood to get free stock(s) - click here to learn more
If you are on Clubhouse and want to connect you can use this link so you can follow me. https://www.joinclubhouse.com/@bellajones. I do have a club called "Financial Freedom for Women of Color" and I do host rooms on a weekly basis where we talk about various topics related to financial literacy.
Bella:
Welcome to the How To Stop Being Broke podcast, where the mission is to change your mindset about how you manage your finances so you can build a financial future that you can be proud of. My name is Bella Jones and I am your host. So relax, sit back and let's jump into today's conversation.
Bella:
Hey, hey, hey. So we are back for another episode. And in today's episode, I want to talk about this crazy credit culture that we are in right now and how it is literally keeping us broke. So we are in a time right now where you can essentially finance just about anything, even if you do not have a credit card or even have good credit. So if you are someone who shops online, whether it's through a web browser or social media, you have definitely, I'm sure, have seen services being offered from companies such as Afterpay and Sezzle.
Bella:
There are other ones, but these are the two ones that I tend to see most often. So these companies essentially provide a service where you can purchase some items now, receive them now, and pay for them later. So you can essentially, as a consumer, buy things such as clothes, jewelry, accessories, shoes, even if you do not have all of the money right now to make said purchases.
Bella:
So how most of these programs work, you will have to pay a deposit upfront. For many of them, it is 25% of the entire balance of the items that you are looking to purchase. And then they give you a timeframe to pay back the balance of the money that you owe. Now, for many of them, I have seen they will offer you six to eight weeks to pay the balance back. And you will make a payment every two weeks until your balance is pay in full.
Bella:
So essentially, this is really a fancy upgrade to layaways that used to be offered, "back in the day." Now, if you're not familiar with layaway, let me take a few minutes to explain how this works. Now, the way layaway used to work is you would essentially say to a company, "I want to buy these items, but I do not have all of the money right now." So they will essentially put these items to the side for you once you pay a layaway fee and they would also require you to pay a deposit as well. Then you, as a consumer, would be able to make payments towards these items. And once you paid your balance in full, then you would physically receive the items.
Bella:
So the companies charge you a fee upfront, usually just to cover their overhead costs because now they do have to store your items and they are unable to sell them. And then you would have a certain timeframe to make payments so you can then retrieve these items out of layaway. Now I know many companies used to offer this service to help consumers buy gifts for Christmas or for the holiday season. So essentially with services like Afterpay and Sezzle, it is kind of the same thing, but the consumer gets the physical items upfront. They don't have to wait to get them later once they pay their balances in full.
Bella:
So this is really a crazy phenomenon to me, right? Because there is some risk involved because what if you don't make your payments, right? That is problematic, but they do have systems in place to help them make sure that they can have a better chance to get their money from you. And then what's also so mind blowing about these services is that they do a great job of marketing. They essentially make it appear that they are making it easier for you as a consumer to buy the things that you want and that you love and that this service is a great way to help you.
Bella:
And in all honesty, these services are not here to help you as a consumer, they are here to help the businesses make money. And not only are these services here to help these companies make money, but they are doing it at your expense and you are willingly giving your money to these companies. So let's talk about how things like Afterpay and Sezzle help companies and how they are detrimental to you as a consumer.
Bella:
So for first things first, I have said this before and I will say it again, selling products and services to people with bad credit and bad money habits is extremely profitable for corporations. I have said this in previous episode and you will probably hear it in future episode. So please keep this in mind as we continue to go through today's episode. So these buy now pay later services are definitely a win-win for the corporations. So first off, the company that is offering you the ability to buy their products now and pay later, they are definitely winning because you feel more empowered to buy more while you don't have to feel the pain of all of that money coming out of your account now.
Bella:
So essentially, this service is really going to help increase their revenue and drive more sales. This is essentially how credit cards work. But now, these buy now pay later services are now targeting people who are unable or just who do not currently have credit cards so they can now tap into this entire new customer base. And again, it is going to help their bottom line. Now, the actual companies like Afterpay and Sezzle, they are making money too. And most of their income and revenue is going to come from fees, right?
Bella:
So they're going to charge you a fee if one of your payments gets returned. They're going to charge you a fee if you have to reschedule an upcoming payment. And then if you miss a payment, they are also going to charge a late fee. And let's be clear, fees are extremely profitable for companies. So just to give you some context in a slightly separate topic, when it comes to banks, for example, right, they charge overdraft fees. So in 2020, the banking industry made almost $9 billion in overdraft fees. So think about that.
Bella:
So they're charging you sometimes $25, $35, $45 when you overdraft your bank account. And that is a nice profit margin for them. So looking back to companies like Sezzle and Afterpay, fees are going to really be their main income source. And they are kind of banking on you being bad at how you manage your money. They are banking on you having to reschedule a future payment because money is tight and that you can't afford to make your payment. And since you had to essentially finance these things you can't afford, they are also banking on some of your payments being returned, so now they also can charge you more fees.
Bella:
And again, because money is tight and you're financing these items that you, again, really can't afford, they are also banking on being able to charge you late fees. So these services, while they promote themselves and advertise themselves as a way to help consumers buy the things that they want and love, it is really a way for them to add to their bottom line. Right? They are appealing to this microwave generation where we want immediate and instant gratification. We do not like the idea of delayed satisfaction. We want it, and we want it now.
Bella:
And these companies are giving us a way to feed into that need to have these things now, regardless of the fact of whether they are or are not a good financial decision. Right? So the idea of saving up to purchase something that you can buy later isn't sexy. It isn't fun. Right? Retail therapy is definitely a thing. And so if they can tap into that need of retail therapy and the instant gratification, it is really helping them drive sales, and at the end of the day, help their bottom line. So this is why it is extremely important for us as consumers to change our mindsets and our money habits.
Bella:
Now, if you are listening to this podcast episode and your company does offer Afterpay, you do offer Sezzle to your customers, this episode is not by any means throwing shade at you as a business. But for me as a financial strategy coach, it is my mission to really help my audience become better consumers. So please do not get offended by anything that I have said or will say in this episode, but I definitely feel it is my responsibility to really educate my audience in how financially irresponsible it is to sign up for things like Afterpay and Sezzle because you are literally buying things that you cannot afford.
Bella:
Now, don't get me wrong. The whole concept of financing definitely has its place. But if we are really in this phase in our lives where we want to improve our financial circumstances, increase our net worth and build generational wealth, we cannot use our hard earned money and resources to finance things like jewelry and clothes. Right? If you are going to finance something, ideally it should be something that is either an asset that's going to add to your net worth or something that's going to bring you additional income. Right?
Bella:
So if you are going to finance your home and get a mortgage, you are buying an asset. That makes sense to me. If you are going to finance, let's say, a loan to invest in your business and your business is going to bring you income, that makes sense to me. Taking your money to finance essentially liabilities does not make sense. And this is why we really have to start changing our mindsets when it comes to how we spend our money.
Bella:
Now, if there is something that you essentially want, there is nothing wrong with saving up to make this purchase. Right? And that is why it is so important to have a budget so you can plan and map out how you are going to save up to buy this thing or these things that you want. Again, building wealth does not happen and is not going to happen by financing liabilities, things like clothing, jewelry, accessory, shoes. These are not adding to your net worth. These items, in a year from now, two years from now, will have little to no value. And we have to stop falling trapped to this concept of, "Oh, I can pay when next payday rolls around." Because in that statement, we are taking for granted that there is another pay period that's going to come.
Bella:
We are still in this COVID-19 pandemic and jobs are not as stable as we would like them to be. And so if you are comfortable in financing, let's say a pair of shoes, and in two weeks you lose your job. So now, you might have your very last paycheck and you might need this paycheck to pay some bills, to feed yourself, feed your family. And now you are on the hook because you decided to buy some earrings two weeks ago. Do you see why it is so problematic and why it is better to save up for something and then buy it instead of taking for granted that you have another pay period or future pay periods coming. We cannot fall into this false sense of security.
Bella:
So before signing up for Afterpay, Sezzle, or any other buy now pay later services, please stop and think, "Is this item really worth it? What if I lose my job next month and money gets tight. Do I still want to be making payments on this jewelry, on these shoes, on these accessories?" I'm going to bet the answer is no. So consider saving up for something that you want, because that will put you in a better financial position.
Bella:
And then more importantly, by the time you save up for this item, you may now be in a position to determine whether you still even want to buy this item. Right? Using this delayed satisfaction or taking the time to save up really will put things into perspective in regards to how important it is to still buy this item or to pass on it because this money could be used for a better purpose.
Bella:
So I hope that you found today's episode insightful, and I hope it will help you make better decisions as a informed consumer. Now, whether you are new to this podcast or if you are a returning listener, please do not forget to check out the show notes below, as I do have many resources to help you in your financial journey. So again, thank you so much for stopping. Bye, and I will talk to you soon.
Bella:
Thank you for listening to another episode of the How To Stop Being Broke podcast. Now, if you enjoy today's episode and look forward to future conversations like the one we have today, make sure to subscribe, because it is time for you to stop being broke and create a financial future you can be proud of.