TikTok made me buy it now (and pay later)
As a Gen-Z financial reporter, I have had to dramatically cut down on my social media consumption and delete TikTok to remain within my financial goals. I found it challenging to avoid the constant advertising that popped up between my fashion and dog-filled algorithm.
Instead, I was met with mini-commercials selling everything from clothes to Stanley Cup accessories. The deluge of buy, buy, buy combined with a seamless add-to-cart feature can make it challenging to reflect before buying – especially during the holiday season.
Many Americans can relate to this phenomenon. Half (48 percent) of social media users say they have made an impulse purchase of a product they saw on social media, according to Bankrate’s Social Media Survey. Even more shocking, the survey found those who impulse bought on social media spent an average of $754 annually.
Consider how to navigate the holidays carefully and avoid relying heavily on buy now, pay later.
TikTok — and other social media — make it easy to overspend
With the holiday season approaching, it is an exceptionally good time to stop the doomscroll. By taking time to reflect on your spending habits and decide how to celebrate with your loved ones, you can make a plan to enter the new year without new holiday debt. And if you’re planning to spend less, you would be part of just under a third of shoppers. According to Bankrate’s Early Holiday Shopping Survey, 43 percent of shoppers plan to spend the same amount as last year, while 33 percent expect to spend less.
I, for one, fall into the category of trying to spend less. My partner and I recently sat down with our respective families and shared that we plan not to purchase gifts this year. We were met with understanding and respect as they appreciated our choice to prioritize saving for our future this holiday season. And even if you can’t skip out on gifting altogether, it can be smart to decide how much you plan to spend so you don’t fall for social media ads urging you to buy more.
The same holiday shopping survey found variety in how folks are shopping, too. Eleven percent of shoppers plan to use a buy now, pay later (BNPL) service while shopping for winter holiday items. The ease of online shopping and integrated BNPL options, like Affirm, Afterpay or Klarna, directly on social media can make this purchase much more seamless. Ease of purchase, however, can contribute to impulsive financial decisions.
The truth about buy now, pay later
Spreading the cost of an item across a few payments can be very attractive and simulate the feeling of saving money, but that’s not always the case. Ted Rossman, Senior Industry Analyst at Bankrate, explains how it can trick consumers into overspending.
“Sometimes consumers trick themselves with buy now, pay later because they fixate on the installments rather than the total cost of ownership. For example, it’s not a $200 purchase anymore, right? It’s just four easy payments of 50 bucks. It’s that infomercial-like compartmentalizing that can conceal how much you’re really spending.”
While BNPL products are available across many sites, their prevalence on social media platforms directly contributes to instant gratification. “BNPL companies were smart to integrate themselves into the e-commerce checkout flow, making it easy to incentivize impulse buys,” Rossman says. He continues that if a shopper is on the fence about making a purchase, the prospect of a less expensive financing method can be the final push to hit buy.
There's an industry saying that credit cards are like power tools, as in, very useful or dangerous, depending on how you use them. I'd extend that analogy to BNPL. Sometimes it's a responsible way to spread out your cash flow and afford something you need. Other times it can be a ticket to overspending.— Ted Rossman, Bankrate Senior Credit Card Analyst
The fixed payment isn’t the full story
When deciding if purchasing a BNPL product is a smart financial decision, don’t get distracted by the advertised fixed payment. Similar to when comparing traditional personal loan options, look at the entire cost, not just the monthly payment.
BNPL can feel more responsible because you can spread out payments, and unlike credit cards, you usually aren’t dragging out repayments and have an interest rate that’s low or 0 percent. But it can be easy to forget the steep interest rate that tends to come with some BNPL products when you pick a longer repayment term.
If you crunch the numbers using a loan calculator, it is clear how interest can add up. Let’s say you are making a $500 purchase through Affirm that you intend to spread over 12 months. This will reduce your monthly payment to $50.23, but with Affirm’s maximum APR of 36 percent, you will spend $102.77 in interest. That $500 impulse buy will now cost you over $600.
How to decide if a BNPL purchase is worth it
Don’t be hard on yourself if you have used a BNPL product in the past or if you plan to use it in the future — as mentioned, they can be a useful tool. For those with a strong handle on their finances, it can improve your cash flow and help you better pace out your spending.
If you are on the fence about hitting buy, don’t let a BNPL option be the reason you purchase. Instead, consider the following when deciding if a BNPL purchase is a smart move for you or your wallet.
1. Take a realistic look at your finances
First and foremost, before making any purchase, whether with BNPL or otherwise, it is smart to consider your finances. This doesn’t mean you must avoid spending altogether, says Rossman, but instead, you should just consider the full cost of ownership.
“Consider the total cost of ownership, not just the biweekly or monthly installments. And set money aside for these kinds of purchases ahead of time. I don’t want to tell people they can’t buy anything or they can’t have any fun. Just make sure you’re accounting for these purchases on the front end.”
When determining if a BNPL purchase fits into your spending plan, pay close attention to the attached rate, if there is one. If a rate is enforced, calculate how that additional cost will impact your other expenses and if you can afford it. More than that, some BNPL providers require a hard credit pull which can temporarily lower your credit by a small amount. It can also complicate your monthly budget if you are financing other big-ticket purchases simultaneously.
2. Decide if it is a necessary purchase
The urge to keep up with the Joneses can make it challenging to decide if a purchase is truly worth it in terms of need or cost. Bankrate’s Discretionary Spending Survey found that 38 percent of Americans would go into debt this year for a fun purchase, such as travel, live entertainment or dining out. As Rossman mentioned, while “fun” is still important, be honest with yourself about whether the purchase is going to be fulfilling or if you are merely following online trends.
3. Sleep on it
Unlike shopping at a physical store, BNPL offers instant gratification, which can lead shoppers to make purchases without much planning. Rossman recommends sleeping on it before making a purchase.
“Some people even suggest,” he shares, “Waiting a day for every $100 the item costs. You might decide you don’t need it that much after all.” By taking a beat, you can take back your power and avoid spending your money solely on impulse.
Bottom line: Don’t be influenced
The key to entering the holiday spending season with your head on straight is to remain diligent online and not fall victim to shopping trends and the attraction of spreading out a purchase cost. If you find yourself drawing shopping comparisons with online influencers and tend to hit buy without much forethought, consider hitting unfollow or deleting the app altogether.
