PLANADVISER - July/August 2022 - 11

tried the method, up from 31% in the 2021
survey. Usage declined with age, ranging
from a high of 58% with Generation Z to
22% among Baby Boomers. Common BNPL
charges were for clothing, shoes and accessories-50%,
29% and 22%, respectively, of
all such purchases. Technology (33%) and
home d├ęcor (25%) were also popular.
While Lending Tree found that household
income had little effect, a Federal
Reserve
report
from May,
" Economic
Well-Being of U.S. Households in 2021, "
discovered a stronger link. " Around 13%
of those with income below $50,000 used
BNPL in the prior year, compared with
7% of those with an income of $100,000
or more. Similarly, 14% of people with
less than a high school degree used BNPL,
compared with 8% of those with at least a
bachelor's degree. "
BNPL's Risks
The LendingTree study highlighted several
potential strains on consumers' finances.
Nearly 70% of BNPL users admitted making
frivolous purchases, and thus increasing
their spending. " Put simply, BNPL is
encouraging many people to buy things
they can't afford, " says Dani Pascarella,
founder and CEO of financial wellness
app provider OneEleven. " Usually, these
are spontaneous, discretionary purchases
that otherwise would not have happened. "
As the LendingTree report notes,
though, that is the point of these loans:
They can extend a tight budget and are
" more easily available to folks with thin
credit or bad credit and are cheaper than
other options such as a retail credit card or
a personal loan. "
This
aspect
of using BNPL works
without problems, provided the borrower
makes timely payments. But often that is
not the case. According to the LendingTree
survey, 42% of BNPL users had made
a late payment, and 25% consequently
were charged a fee or interest. Late fees
and interest rates on missed payments
vary among lenders, but they can be high.
A recent NerdWallet review detailed rates
and fees among the largest lenders.
The Consumer Finance Protection
Board cites another risk. If a consumer
has multiple purchases on multiple schedules
with multiple companies, it may be
hard to keep track of when to pay whom.
And when there is too little money in a
consumer's bank account, this can result
in charges by both the person's bank and
the BNPL provider. Because of the ease of
procuring these loans, consumers can end
up spending more than anticipated, the
CFPB observed.
BPNL's impact, if any, on a borrower's
credit score depends on the particular
credit bureau. In a working paper from
April, Marshall Lux and Bryan Epps at the
Harvard Kennedy School reported that
TransUnion and Experian plan to include
BNPL data on credit reports. TransUnion is
working with both FICO and VantageScore
to determine how best to include BNPL
data in future credit score models.
Lux and Epps pointed out that including
such data could " help generate scores
for consumers without a credit history
and help build credit for consumers with
existing weak credit. " But including these
loans could actually damage a borrower's
credit score, particularly " if issuances
of BNPL credit are considered singleinstallment
loan accounts that are quickly
opened and closed. "
A Crowding-Out Effect
Sources agreed that a major potential
downside to BNPL is the negative impact
of higher consumer debt on financial
health. It is a crowding-out argument:
More money spent on debt service means
less available in the budget for meeting
everyday expenses, saving and other goals.
" Debt is the No. 1 barrier to retirement
savings and other important long-term
financial milestones, such as homeownership
or the pursuit of higher education, "
Pascarella says. " Monthly debt payments
can add up quickly and strain a household's
budget. When you're struggling to
pay off your debts and afford necessities
each month, that immediate cash-need
takes up all your financial mindshare, and
saving for the distant future becomes an
afterthought. " -Ed McCarthy
Top 4 Reasons
Users Prefer Buy
Now Pay Later
To Credit Cards
58%
BNPL
services
charge
little or no
interest
Making
payments
is easier
45%
There's
more
flexibility
44%
33%
The
approval
process
is easier
Goodbye, Visa?
38%
Users
who said
BNPL will
eventually
replace
credit
cards
Source: C&R Research
planadviser.com July-August 2022 | 11
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PLANADVISER - July/August 2022

Table of Contents for the Digital Edition of PLANADVISER - July/August 2022

Balancing Act
Greater Access
Previewing Plan Features
A Different Way to Save
Next-Level Options
New Territory for Income?
Compliance for Wealth Managers
If Caught Off Guard by A Failure
Larry E. Crocker
PLANADVISER - July/August 2022 - C1
PLANADVISER - July/August 2022 - FC1
PLANADVISER - July/August 2022 - FC2
PLANADVISER - July/August 2022 - C2
PLANADVISER - July/August 2022 - 1
PLANADVISER - July/August 2022 - 2
PLANADVISER - July/August 2022 - 3
PLANADVISER - July/August 2022 - 4
PLANADVISER - July/August 2022 - 5
PLANADVISER - July/August 2022 - 6
PLANADVISER - July/August 2022 - 7
PLANADVISER - July/August 2022 - 8
PLANADVISER - July/August 2022 - 9
PLANADVISER - July/August 2022 - 10
PLANADVISER - July/August 2022 - 11
PLANADVISER - July/August 2022 - 12
PLANADVISER - July/August 2022 - 13
PLANADVISER - July/August 2022 - 14
PLANADVISER - July/August 2022 - 15
PLANADVISER - July/August 2022 - Balancing Act
PLANADVISER - July/August 2022 - 17
PLANADVISER - July/August 2022 - 18
PLANADVISER - July/August 2022 - 19
PLANADVISER - July/August 2022 - Greater Access
PLANADVISER - July/August 2022 - 21
PLANADVISER - July/August 2022 - 22
PLANADVISER - July/August 2022 - 23
PLANADVISER - July/August 2022 - Previewing Plan Features
PLANADVISER - July/August 2022 - 25
PLANADVISER - July/August 2022 - 26
PLANADVISER - July/August 2022 - 27
PLANADVISER - July/August 2022 - A Different Way to Save
PLANADVISER - July/August 2022 - 29
PLANADVISER - July/August 2022 - 30
PLANADVISER - July/August 2022 - 31
PLANADVISER - July/August 2022 - Next-Level Options
PLANADVISER - July/August 2022 - 33
PLANADVISER - July/August 2022 - 34
PLANADVISER - July/August 2022 - 35
PLANADVISER - July/August 2022 - New Territory for Income?
PLANADVISER - July/August 2022 - 37
PLANADVISER - July/August 2022 - Compliance for Wealth Managers
PLANADVISER - July/August 2022 - If Caught Off Guard by A Failure
PLANADVISER - July/August 2022 - Larry E. Crocker
PLANADVISER - July/August 2022 - Cover3
PLANADVISER - July/August 2022 - Cover4
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https://www.planadviserdigital.com/planadviser/november_december_2019
https://www.planadviserdigital.com/planadviser/september_october_2019
https://www.planadviserdigital.com/planadviser/july_august_2019
https://www.planadviserdigital.com/planadviser/may_june_2019
https://www.planadviserdigital.com/planadviser/march_april_2019
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https://www.planadviserdigital.com/planadviser/july_august_2018
https://www.planadviserdigital.com/planadviser/may_june_2018
https://www.planadviserdigital.com/planadviser/march_april_2018
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https://www.planadviserdigital.com/planadviser/november_december_2017
https://www.planadviserdigital.com/planadviser/september_october_2017
https://www.planadviserdigital.com/planadviser/july_august_2017
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