Pattie Lovett-Reid: Buy now, pay later? Don't do it!
Low rates and rising costs are leading more Canadians to take on more debt.
The latest MNP Consumer Debt Index report has found that borrowing intentions are on the rise, as many Canadians simply seek to make ends meet, and that borrowing has taken on a riskier tone as consumers look to finance their purchasing habits over the next few months.
Nearly six in 10 respondents (58 per cent) say they are somewhat likely to borrow more money before the end of the year. This number includes the 37 per cent who are inclined to rack up more debt on credit cards that already carry a balance.
What is alarming to me is the concept of buy now and pay later. This type of activity spiked during the pandemic with an uptick in online shopping coupled with financial instability.
However, this move could prove to be very costly.
Buy now, pay later, payday loans and even credit cards may seem attractive on the surface, but the devil is in the details. These types of payment options favour the lender, not the consumer. They are designed for companies to make money at your expense.
The longer you stay in debt, the higher your interest costs will be, and the more the loan or advance will cost you. Add to this charges for processing the transaction and potential late payment fees should you miss a payment, and it may start to seem like a conspiracy to cost you a lot of money.
"Retail incentives of buy now and paying later may satisfy your need for instant gratification but paying later is not always good value for consumers," says Grant Bazian, president of MNP.
We have been lulled into a sense of complacency, with rock-bottom interest rates leading to purchases we know we might not otherwise been able to afford. In fact, 58 per cent admitted in the MNP survey that low interest rates provided them with the opportunity to buy stuff they wanted but didn't necessarily need.
However, the low-interest-rate gravy train will come to an end.
We can't ignore the nearly half (46 per cent) surveyed who reported that they were $200 or less away from not being able to meet their financial obligations, including the 27 per cent who say they already don't make enough to cover the bills coming in and their existing debt payments.
Prices are on the rise and inflation has been stubbornly persistent. Energy costs are soaring, and supply chains have been disrupted. All of these challenges increase the cost of goods and services at a time when some families are living very close to the margin and struggling to make ends meet.
Lower-income Canadians are the cohort I worry about most. It isn't the discretionary spending that could take them down financially, it is the basics like food and shelter.
However, for others, the financial risk to Canadian families is real. Interest rate increases are on the horizon as the economy gains traction. You could lose your job, have an unexpected expense or even a life-altering event. Any one of these life events could add significant financial stress to your household.
For those who continue to rack up debt because they can, a word of caution. There is one thing that could change your financial trajectory: eliminating discretionary spending on the things you know you can't afford.