Families falling into ‘Afterpay’ trap this Christmas
SLUGGISH wage growth and rising cost of living pressures are forcing many Australians to rely on risky buy now, pay later schemes this Christmas shopping season.
New research released by IBISWorld has found that services such as Afterpay, zipPay and Openpay have surged in popularity over the past year, as Aussies use buy now, pay later systems to stretch their Christmas budgets further.
"Traditional credit cards still present an alternative way of purchasing Christmas gifts, but services such as Afterpay charge zero interest on purchases and allow consumers to stretch out payments over the course of up to eight weeks without necessarily taking on debt," IBISWorld senior industry analyst Tommy Wu said.
It comes after a report released by ASIC last month found that more than two million Australians now use these services, with the total debt on these transactions growing from $476 million in April 2016 to $903 million by June 2018.
The report also found that about 60 per cent of consumers using these services were aged between 18 and 34 years old and about two in five users earned less than $40,000 a year.
"ASIC's recent review into the buy now pay later sector found that over half of consumers using these services spent more than they otherwise would have without the service," Mr Wu said.
"The review also showed that about one in six users of these services delayed a bill payment, borrowed additional money or became overdrawn to make a scheduled repayment."
The concerns follow Barefoot Investor Scott Pape's recent yuletide warning that parents should think twice before blowing a fortune on their kids this Christmas because often they end up giving them expensive presents they "don't remember anyway".
"It's not worth it, if it ruins or stresses you out right up to Christmas and after Christmas," the best-selling author said.
"Kids have inflated expectations about what they expect from Santa and that leads into tough conversations.
"Christmas morning is just one morning that you have got your kids all excited about unwrapping presents."
Mr Pape said December and January always caused heightened financial pressures and urged shoppers to steer clear of credit.