Cash is king for Gen Z over installment payment services like BNPL
Buy Now Pay Later services like Klarna and Afterpay seemed to be having a moment with Gen Z, but attitudes might be changing as debt piles up.
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- Gen Z's spending preferences are changing as they face high prices and increasing credit card debt.
- BNPL services offer financing options, but Gen Z is looking to make better money decisions.
- Klarna said that 18- to 25-year-olds are one of its smallest demographics.
When it was time for 27-year-old Zachary Timms to propose to his girlfriend, he used Affirm for the first time to pay for her dream ring.
Timms told Business Insider that he doesn't usually use Buy Now Pay Later services, but the convenience of paying off a $7,000 engagement ring led him to try it. As an elder Gen Zer, his spending choices fit in with a trend BNPL companies and retail experts have observed in young adults.
"I try to buy everything out of pocket if I can," Timms said.
His reason? To avoid piling up debt and set himself up for future milestones, like buying a home.
Although Timms' girlfriend said yes, Timms told BI that he would say no to using a BNPL service again — unless he was "in a pinch."
BNPL seemed to be growing in popularity with Gen Z in 2022, with its low fees and fast credit approval. It has been criticized, however, with consumers previously telling BI that it can encourage impulsive purchases and lead to racking up debt.
BNPL offers people the option to pay for items like apparel, tech, and plane tickets in installments instead of paying full price all at once. The difference between BNPL and credit cards is that the full price of an order is calculated and split into a short-term financing schedule at the checkout at firms like Afterpay and Klarna.
A recent survey by the University of California's Center for Public Relations and creative communications agency Day One Agency seemed to show Gen Z aren't as enamored with services like BNPL as many might expect, even as companies expand their offerings on sites like Target and Sephora.
USC and D1A asked 1,022 18- to 25-year-olds across the US if they'd rather pay for something outright or in installments; only 14% said they'd opt to pay in installments.
The majority, 59%, chose to pay for goods upfront and 27% of respondents fell somewhere in the middle.
If Gen Zers like Timms are trying to avoid paying in installments, there are a number of factors that could contribute to that choice, Courtney Alev, consumer financial advocate at Credit Karma, said.
They want to make better financial decisions
Gen Z is racking up credit card debt with the rising cost of living.
According to a Credit Karma survey last year, 86% of Gen Zers surveyed "left 2024 with financial regrets, their most prolific regret being overspending," Alev said.
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