Financial advisers say compulsive spending is a huge problem for Kiwis, with debt consolidation loans mounting in number for those eager to buy their first home. Photo / Getty Images
Buy now, pay later. Is it really a good idea? Carly Gibbs and Mike Tweed report.
Clothes, perfume, sports equipment and an outdoor fire pit. There's almost nothing Gina hasn't added to an online shopping cart.
And for that, she's felt shame.
Right now, she's $20,000 in debt and working hard to change her compulsive spending habits — the result of loans over two-and-a-bit years from finance companies, and buy-now pay-later purchases.
Gina, whose name has been changed for privacy, is a fan of Afterpay, which allows you to shop now but pay later through four equal instalments.
If you make the repayments on time, you won't have to pay penalties — making shopping possible 24/7 even when you can't afford it at that moment.
On top of that, targeted social media advertising and influencer discount codes mean shopaholics struggle to fight the buzz of a good deal.
Financial advisers say compulsive spending is a huge problem for Kiwis, with debt consolidation loans mounting in number for those eager to buy their first home.
Frivolous spending is stopping many from entering the housing market, with some couples racking up to $100,000 in consumer debt on fridges, cars, outdoor furniture, clothing, holidays, and "just life".
Whanganui financial adviser Paul Butler says, in general, he's against the buy-now pay-later strategy, and that people need to exercise more self-control when it comes to expenditure.
"It takes money out of your pocket in the future, so I'd prefer people to pay as they go," Butler says.
"If someone does take on a buy-now pay-later debt, I'd encourage that person to only take on one at a time.
"Easy finance" has always been "too easy", Butler says, and a culmination of a lot of small debts can lead to a much bigger problem.
"It means that people go from living 'pay day to pay day' to basically spending their pay in advance.
"They're possibly putting their grocery money on the line, and living expenses are going towards debts. You have a feast, then a famine.
"There are probably people who can afford to do it, and just see it as a convenience thing. However, my feeling is if you've got the funds, use the funds first."
Butler sees buy-now pay-later as a marketing tool used by retailers to "expand their options".
"I can understand a retailer wanting to increase their sales, but it's too easy to obtain that sort of credit.
"If people are struggling to handle their finances, and things are getting difficult, then they should seek assistance.
"Most people wait until they hit rock bottom. It's obviously preferable that if they see a problem emerging that they deal with it early, rather than waiting."
Sandy Fage of Whanganui Budget Advisory Service says one of the major concerns for people in the budgeting sector is the ease with which people can buy a number of items without having to pay any money up front.
"The problem with a lot of these [buy-now pay-later] things is that they don't come under the CCCFA [Credit Contracts and Consumer Finance Act].
"With things like Afterpay, you can just go into a store and buy a top and say you'll pay it off. Then you can walk into another shop, then another shop, and do the same thing.
"You can do the same thing online and none of these places do any affordability assessment.
"The examples we're seeing is that someone will say 'Oh, it was only going to be $2 or $5', but if you've got 10 of those or more, that's when everything falls over. As soon as it falls over then you get the charges."
Fage says people should only take out loans for things they needed, not for things they want.
"You are responsible for your money. It's not your mum, it's not your partner, and it's not your bank.
"In the sector that I work with, we have an educational programme that we've been working on with MSD [Ministry of Social Development] called MoneyMates. One of the first modules is differentiating between a need and a want.
"It sounds really basic, but we're constantly being told that we need the latest phone, or the fancy mag wheels. It becomes the norm to think that we need that stuff.
Fage says any new legislation around regulations to easy pay options would "take time".
"In the meantime we've got potentially two or three years of people being allowed to run amok."
Rebecca Puterangi of The Investor Bird says a lump sum of $2 million will be needed for a couple to retire at 65 with an annual income of $70,000 (an age and figure many clients give).
However, Charlene Overell, a financial planner at G3 Financial Freedom reduced that figure by half, saying studies show people will spend more when they first enter retirement, but less from their mid-70s onwards.
"It's relative to your income now and how you are used to living, plus how you would like to live in retirement.
"We have people living off a lot less being able to achieve goals of travel with $1 million invested at 65, 70, but it is about how you invest it."
For Gina, a solo mum and renter, times are tough and culture and society are telling her to spend.
She lost her job in early childhood education because of Covid-19, and being broke has been a shock.
She's on the unemployment benefit and is looking for work. She's also sought the guidance of a budgeting mentor, as she continues to battle with compulsive buying.
She was embarrassed to tell her friends about her finances when she lost her job and continued the "facade" of going out to dinner in new outfits bought from the clothing website Boohoo but paid for via Afterpay.
1) Look at your money coming in and out. Can you make any savings or changes? And, if you do, where would you redirect that money?
2) Build up an emergency fund (cash in the bank). Ideally three to six months of your spending.
3) Set your foundation: Income and life insurance, a will, and enduring power of attorney.
4) After completing steps 1-3, continue to manage your continued money in, money out, and looking at creating surplus income. Seek advice on what to invest it in, be it KiwiSaver, managed funds, term deposits, or saving for a house.
The SH3 store stayed within the same family for 100 years.
