How to escape the BNPL Debt-trap? Mindfulness is the Key!
Buy Now Pay Later (BNPL) is a convenient way to get credit. Unfortunately, its convenience leads weaker sections of society to make impulsive and unwanted purchases beyond their means. They end up in a debt trap and have to sacrifice essentials to get out of it. Mindfulness, the practice of being in the moment, can help with this problem. By making buyers focused on financial self-control, it can reduce dependence on BNPL, thereby improving financial and overall well-being of consumers.
Who wouldn’t want to avail interest-free monthly instalments without any cumbersome documentation? It’s no wonder that Buy Now Pay Later (BNPL) apps like CashE, LazyPay, or
Amazon Pay Later are popular. On the face of it, both retailers and buyers benefit through BNPL. Unfortunately, the truth is much harsher. Vulnerable sections of society often use BNPL to help make ends meet, and it drives them into a vicious cycle of debt. As a result, there is rising concern about the effects of BNPL on consumers’ financial and overall well-being. A study contributes to this discussion by investigating the question: “Can mindfulness reduce the use of BNPL?”
BNPL is not subject to lending regulations because it does not charge interest. So, it also
does not involve credit checks and is missing in-built safety features like cutting off of access. Many buyers feel that it is an easy way of material acquisition, especially if the product is beyond their means. BNPL usage is further driven by the tendency to make impulse purchases and a lack of self-regulation during the purchase journey.
Those availing BNPL often do not realise the full implications of their choice. This is
especially true for vulnerable socioeconomic groups and those with poor financial literacy. Around half of them are incapable of repaying the amounts in time and end up having to pay hefty amounts in late fees. The Australian Securities and Investments Commission found that a significant number of consumers have to give up essentials like a meal or borrow again to pay these fees or instalments, pushing them deeper into debt and poverty.
Many factors can encourage unwanted consumption among the poor. One such surprising factor is television viewing. Read how television viewing can hurt vulnerable populations.
The study found that mindfulness can reduce BNPL use. Mindfulness is described as the
quality of being in the present moment. It can be a personality trait or a state of being. The study considered mindfulness as a trait. Mindfulness benefits people by reducing anxiety and improving health and subjective wellness. It can also have a positive impact on financial well-being, which refers to people’s ability to sustain their current and future desired standards of living.
Mindfulness affects BNPL by focusing people’s thoughts on pausing before decision-making.
It encourages people to consider whether a particular consumption is necessary. Thus, it moves people away from impulsive and unwanted purchases, which form a significant portion of BNPL purchases. It increases financial self-control through acceptance of what one already has. By making people think about their purchase decisions rationally, mindfulness can limit their usage of BNPL, reducing potential indebtedness and improving financial well-being.
The study has relevant insights for policymakers, retailers, financial advisors, and consumers.
Policymakers should develop programmes to improve financial literacy so buyers can make more informed decisions. They can also encourage BNPL firms to communicate risks via messaging to customers opting for it. If such firms are unwilling to take any steps to reduce risks to vulnerable populations, policymakers can bring the BNPL industry under formal regulations to protect the weaker sections of society.
Retailers and BNPL providers can also benefit by considering its impact on consumers’ well-
being and exercise discretion in their choice of customers. There is a risk of loss of reputation because of the negative impact, especially as awareness about such impact grows. Retailers could also suffer brand damage as a consequence. Moreover, taking steps to avoid debt traps for consumers can prevent formal regulations from being imposed.
Financial advisors can help their clients by using short mindfulness training interventions.
They can encourage their clients to show more self-regulation, especially if they have impulse buying tendencies. In fact, they can measure levels of financial literacy, financial self-control, and impulse buying tendencies during the intake of clients to be able to guide them better towards financial well-being.
Impulse purchases are important for retailers, and they use various ways to encourage it. Here is a discussion on one of these ways.
Finally, consumers should be aware of the possible pitfalls of BNPL and how mindfulness can
help them. They can practice developing mindfulness and use it to improve their self-regulation when making purchase decisions. They can also enhance their financial literacy through readily available content on the internet. Being mindful and avoiding excessive use of BNPL can benefit them in the short-term as well as the long-term. The graphic below gives some tips on how to develop mindfulness.