Buy now, pay later has exploded in the payment scene in recent years, allowing buyers to buy items without paying for them right away, putting many into technical debt.
However, nearly a third of people say late payments are not considered debt, new research shows.
Jessica Exton, behavioral scientist at ING – who published the report, said: “The emergence of new forms of credit, such as buy now, pay later, has vague lines.
“The ability to defer a payment responds to our natural tendency to opt for immediate rewards and to underestimate the impact of future costs.”
More people believe that plans bought now and paid later are considered debt since the virus was blocked
About 30 percent believe they don’t buy now, pay later as debt, according to exclusive data from ING bank.
This means a slight drop of 6 percent compared to the previous study, but still suggests that some customers don’t fully understand the risks.
The coronavirus pandemic has helped more people evaluate their finances, which is likely due to the number of people being fired or losing work, the study also found.
To investigate the psychology of what people consider to be debt, ING spoke to a number of respondents from European countries about what they think is or is not.
For this report, Ipsos conducted two online surveys – from November 27 to December 16, 2019 and from May 15 to 27, 2020 with more than 12,000 respondents from 13 countries in Europe.
It has found that debt awareness has increased since the block, which is felt more by lower earners.
Between December 2019 and May 2020, the number of people who said they would buy now and pay later was certainly not a form of debt that had fallen by an average of 10 percent among those earning less than € 1,000 a month.
This is compared to an average drop of four percent among those earning more than $ 3,000 a month, reflecting increased awareness among those who are more likely to make repayment difficult in uncertain times.
Buy now, pay later schemes allow customers to purchase items without paying at the time and instead refund the company later.
Many companies, including Klarna, also allow consumers to pay in sections to further facilitate the refund.
Only 13% believe that debt is a normal part of life, but a third have an institution loan
Jessica Exton adds, “With these options seamlessly integrated into our online purchasing journey, there is little friction that prompts us to fully consider the implications of spending decisions.
“Personal experiences and financial situations also play a role in the psychology behind what is considered to be guilt.”
However, not everyone questioned was sure of what was considered to be guilt.
Many were unsure whether or not delayed payments were considered debt
The survey asked whether people would feel like going into debt if they used a range of payment options, and respondents showed a high degree of uncertainty, with 20 percent saying they were unsure whether certain options were considered debt or not.
While only 13 percent of Europeans believe debt is a normal part of life, a third also say they have a loan from a recognized institution such as a bank.
Technology can also help by reducing the cognitive efforts of debt management, for example through automation.
In Europe, on average, 59 percent of those in debt say they have set up some form of automatic repayment, including 72 percent of people who have loans from recognized institutions such as banks.
This is because forgetfulness can be a problem for those who repay debts, with 36 percent of people who paid a bill late in the past year either forget or postpone.
The way delayed payments are presented can also add to their appeal, such as buy now, pay schedule taps later in ‘Present Bias’, according to ING research.
This means that in the future, shoppers like to opt for instant rewards, even if they are relatively small over relatively larger ones.
Respondents considered debt different for each type of delayed payment
Likewise, when people can split payments into thirds, consumers don’t naturally focus on totals and chunking is attractive because it distributes large amounts to make them psychologically palatable.
Debt, however, is more than delayed payments at checkout.
By May 2020, the most popular were loans from banks or governments, 31 percent had overdrafts, 21 percent had overdrafts, 20 percent had no credit card payments every month, and 18 percent had loans from friends or family.
However, behavioral scientists believe that learning our finances and keeping debt as much as possible can help clients stay out of financial trouble.
Exton added, “Financial education is useful for debt management, but our behavior and habits also play a key role.
“Once something is at a distance, for example, it is difficult to stay ahead and act when needed – a cognitive weakness of delay. But understanding this helps.
“Recognizing how human behavior affects credit usage can help us carefully manage late payments and ask the right questions before we click” buy. ”
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