Buy now, pay later on Square Checkout in recent years allowing shoppers to buy items without paying for them right away has technically dumped many.
New research shows that nearly a third of people say they don’t consider late payments a debt.
“The emergence of new forms of credit, such as buy now and pay later, has blurred lines,” said Jessica Exton, a behavioral scientist at ING – who published the report.
“Having a choice to defer payment leads to our natural tendency to choose immediate rewards and underestimate the impact of future costs.”
More people feel buy now pay late schemes count as debt since the virus lockdown
About 30 percent don’t believe buy now, pay later to be debt, according to exclusive data from ING Bank.
This is a slight decrease of 6 percent compared to the last study, but still indicates that a number of shoppers do not fully understand the risks.
The survey also showed that the coronavirus pandemic has helped more people take stock of their finances, which is likely due to the number of people who have been furloughed or lost their jobs.
To examine the psychology of what people perceive as debt, ING spoke to a number of participants from European countries about what they think is debt or not.
Ipsos conducted two online surveys for this report – from 27 November to 16 December 2019 and from 15 to 27 May 2020 with over 12,000 respondents from 13 countries across Europe.
And it found that since the lockdown, there has been an increase in awareness of debt which was felt more by those on lower incomes.
Between December 2019 and May 2020, the number of people who said buy now, pay later definitely wasn’t a form of debt dropped by an average of 10 percent among those with incomes of less than €1,000 per month.
This compares to an average drop of 4 percent among those earning more than 3,000 euros a month, reflecting increased awareness among those who are likely to find it difficult to pay in uncertain times.
Buy Now, Pay Later allows customers to purchase items without having to pay at that time and instead pay the company again at a later date.
Many companies including Klarna also allow consumers to pay in sections to make checkouts easier.
Only 13% believe debt is a normal part of life, but a third hold a loan from an institution
Adds Jessica Exton: ‘With these options seamlessly integrated into the online buying journey, there’s little friction that causes us to fully consider the implications of our spending decisions.
“Personal experiences and financial situations also play a role in the psychology behind what is considered debt.”
However, not all of those surveyed were sure what counted as religion.
Many were not sure whether or not late payments counted as debt
The survey asked if people would feel like they were taking on debt if they used a range of late payment options, and respondents showed a high degree of uncertainty with 20 percent saying they weren’t sure whether some options counted as debt or not.
While only 13 percent of Europeans believe debt is a normal part of life, a third also say they hold a loan from a recognized institution such as a bank.
Technology can also help by reducing the cognitive efforts of debt management, for example, through automation.
In Europe, an average of 59 percent of those with debt say they have set up some form of automatic repayment including 72 percent of people who have loans from recognized institutions such as banks.
This is because forgetting can be a problem for those paying off debt, with 36 percent of people who paid a bill late last year either forgetting or procrastinating.
The way late payments are served can also add to the appeal, for example, a buy-now-pay-later scheme shifting to a “current bias,” according to research by ING.
This means that shoppers like to choose immediate rewards, even relatively small ones, over relatively larger rewards in the future.
Respondents considered the debt differently for each type of delayed payment
Likewise, when people can divide payments into three, consumers do not naturally focus on totals and ‘splitting’ is attractive because it divides large sums to make them more psychologically palatable.
However, the debt is more than late payments at checkout.
In May 2020, the most popular types were loans from banks or governments with 31 percent having these, 21 percent having regular overdraft accounts, 20 percent having unpaid credit cards per month, and 18 percent having loans from friends. or family.
However, behavioral scientists believe that learning about our finances and staying on top of debt as much as possible can help clients stay out of serious financial difficulties.
Exton added: “Financial education is useful for debt management, but our behaviors and habits also play a major role.
Once something is off, for example, it’s hard to stay ahead and act when needed – cognitive impairment for delay. But understanding this helps.
“Knowing how human behavior affects the use of credit can help us carefully manage late payments and ask the right questions before pressing ‘buy.'”
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