With inflation squeezing wallets, more Americans are buying groceries on risky “Buy Now Pay Later” credit, Bloomberg reports.
Proponents of BPPL argue that because these services typically don’t charge interest, they’re a better alternative to buying food with a credit card. Problem is, consumers offered such credit, which can be opened quickly via a soft spending check, readily rack up bills and are then hit with late fees that snowball once they start missing payments.
10.2% Food Inflation
Middle- and lower-income families have been particularly hard hit by inflation, which reached a record 9.1% in June but has since tamped back down to 5%. A family of four must spend a minimum of $1,000 a month on groceries to have a nutritious diet, according to the U.S. Department of Agriculture, up a whopping 48% from $675 a month two years ago.
Just in the past 12 months through February, food prices were up 10.2% in the U.S., almost double the 5.2% increase in energy prices, according to the Bureau of Labor Statistics. In the trailing 12 months through March, food prices moderated somewhat to 8.4%, but are still extraordinarily high.
Some economists think food suppliers have expanded their margins well beyond what they have needed to because of inflation, leading to food insecurity and unconventional ways of paying for food, like buying groceries with a credit card or a BNPL extension.
For people like Faith Smith, a 34-year-old single mother who works as an administrative assistant, buying a carton of eggs can tip her budget over the edge.
Even though Smith had already maxed out her credit with BNPL providers Afterpay, Klarna and PayPal, she took up a recent offer from Target for additional Buy Now Pay Later credit, despite knowing it was an unwise move.
“I just can’t buy groceries out of pocket like I used to,” Smith says of her $500 monthly food budget. BNPL “helps for a week or two, but then you’re stuck with a grocery bill for a couple months.”
BNPL Loans Explode
A whopping half of Americans have used Buy Now Pay Later apps, and of them, 20% have used them to buy groceries, according to LendingTree. In fact, Americans are using BNPL for more and more items, from clothes to even guns.
In 2021, five of the main BNPL lenders originated $24.2 billion worth of these loans, up from $2 billion in 2019, according to the Consumer Financial Protection Bureau.
Using this readily available and seemingly innocuous credit puts people, especially those likely to already be in financial distress, into a “cycle of debt very difficult to get out of,” says Terri Bradford, a payments specialist at the Federal Reserve Bank of Kansas City.
For instance, it’s all too easy for a consumer with a $100 purchase who is offered a BNPL special at checkout to add another $300 or more, seemingly painlessly, to their bill, says Harvard Business School economist Marco Di Maggio.
“They tend to see it as a $100 purchase, and forget about the other $300—that’s what puts them in trouble,” Di Maggio says.
Smith can’t see that far down the road right now.
“I’m worried,” she admits. “I’m living paycheck to paycheck even though I shouldn’t be. Using these services is the only means of survival.”
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