Gen Z reportedly 'drowning' in debt after rise of controversial online payment options

Gen Z are reportedly drowning in debt due to the rise in popularity of buy now, pay later schemes.

As if the younger generations didn't have enough to worry about in terms of planet-killing asteroids and robotic uprisings, they can't even enjoy what time they have left on the planet thanks to looming clouds of pollution and the idea that America is going to go bankrupt. If all of that wasn't enough to keep you up at night, there's no chance of getting on the property ladder, because apparently, we're all in crippling debt.

Gen Z is apparently being hit the hardest, with a rise in controversial online payments chipping away at their bank balances. While it's all well and good buying now and paying later as a problem for 'tomorrow you', it's a serious issue that could be pushing you well beyond your means.

For those who don't know, Gen Z is the bracket that comes after Millennials and before Generation Alpha, born between 1997 and 2012, sometimes known as Zoomers.

Were told to watch out for buy now, pay later options (Anchiy / Getty)

As the first generation never to know the world without the internet, it's no surprise that Zoomers are pretty connected to the World Wide Web and their phones. With this, tech-savvy shoppers are on the lookout for a bargain but might be tricked into thinking they've got one with all those buy now, pay later offers.

According to research by Adobe Analytics that was shared by the Associated Press, shoppers will spend around 11.4% more this holiday season than they did in 2023. Adobe forecasts a whopping $18.5 billion worth of goods will be purchased through third-party services with buy now, pay later options between November 1 and December 31, with $993 billion of that coming on Cyber Monday alone.

There's been a sharp rise in buy now, pay later (BNPL) payment options, with younger shoppers from Gen Z flocking toward them due to their soft credit checks. As these are aimed at shoppers with low or no credit, younger consumers can easily extend their credit without realizing the perils of debt.

The likes of Klarna, Afterpay, and Affirm are accused of snatching up young shoppers, offering purchases in monthly installments or over several periods while touting no or low interest. Of course, many won't look at the conditional fees for late payment.

Emily Childers, consumer financial expert for personal-finance technology company Credit Karma, points to data suggesting that member credit card balances have risen by more than 50% for Gen Z and millennials since March 2022.

Gen Z shoppers might not know what they're getting themselves in for (Hispanolistic / Getty)

Explaining the problem with this, Childers added: "Young people are entering this holiday season already in the red. And, based on what we’re seeing in the data, they’re continuing to bury their heads in the sand and spend."

By not paying the full amount upfront, consumer watchdogs are concerned that shoppers are lured into a false sense of security that they're not paying as much as they actually are. However, boasting multiple BNPL payments can soon add up thanks to a lack of central reporting that you might get from a credit card statement.

Mark Elliott, chief customer officer at financial services company LendingClub, explained: "Buy now, pay later can be an innovative tool for purchases you’re going to make anyway. The challenge is that it does fuel overspending."

There's a growing debate about BNPL options, and earlier in 2024, the Consumer Financial Protection Bureau ruled that these companies adhere to the same standards as other lenders. As a report from the Federal Reserve Bank of New York suggested customers spend 20% more when using buy now, pay later, it's clear the psychology is working.