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The New York Times has a story about how more Americans than ever are responding to inflation pressures by using  “buy now, pay later” services to buy food and other essentials.  In the process, the Times writes, they may be putting themselves into debt.

An excerpt:

"When pay-later services like Klarna, which was founded in Sweden, arrived in the United States about a decade ago, they were largely used for one-time, discretionary purchases like concert tickets and high-end clothing. But as inflation mounts, Americans are increasingly turning to them to finance something much more mundane and essential: what they eat.

"And there are signs that the use of these services for repeated, everyday expenses like groceries and restaurant meals is pushing some users, particularly younger people who are already overextended, deeper into debt."

The story notes that "pay-later companies say their products are a convenient tool — like layaway plans or credit cards — to help consumers manage their finances in tough times. The services, with breezy names like Zip, Zilch and Affirm, are easy to use, with well-designed apps, websites, virtual credit cards and widgets. Shoppers can apply for them in a checkout line and be approved in minutes.

"Unlike credit cards, most of the services don’t charge interest or require applicants to undergo extensive credit checks. There is usually a processing fee for each purchase, typically paid by the merchant."

But, there are some harsh realities:

"Some services charge late fees that can exceed the interest charges on credit cards, according to a March report by Consumer Reports. Companies aren’t always transparent about the terms of using the service, and missed payments can hurt users’ credit scores.

"Pay-later users tend to be economically vulnerable. A July report by the financial services company Fitch Ratings found that they carry more debt than the general population, and that more than 41 percent of applicants have a poor credit history.

"The report showed that delinquency rates for some pay-later services more than doubled from June 2021 to last March — from 1.7 percent to 4.1 percent at Afterpay, for example — while delinquency rates for major credit cards remained unchanged, at roughly 1.4 percent."

KC's View:

I would worry a little bit, if I were a retailer, that customers going into debt to buy groceries might blame me for the problem - not the machinations of the pay-later companies, nor their own financial illiteracy.  That's not good.

One answer might be to sponsor financial literacy classes, helping consumers hit hard by inflation to figure out how to shop smarter, and in doing so, creating sustained relationships with those shoppers.