My feelings on this whole afterpay thing

I am partial to the odd online clothes shopping spree. As time goes on, the range, service and information available make it easier and easier for me to find something awesome and return anything that just doesn’t fit so good.

I have noticed recently that the ‘Afterpay’ option is becoming more and more popular with all of the websites that I frequent. I’ve actually noticed them on a lot of websites, not just clothes. If you haven’t seen them then you likely don’t do any online shopping because they are pretty popular right now.

It is essentially like a reverse lay-by. You buy your pretty dress, it is delivered and then you pay for it each week in installments until it is paid off. For example, you buy a dress for $60, you will pay $15 a week for the next 4 weeks until it is paid off.

I’ve noticed it a lot and thought I’d give my opinion on it seeing as I haven’t seen anyone say anything about it, either positive or negative.

From a marketing perspective it’s pure genius really. The chances of not getting the full amount are pretty slim. Typically you have to put your details in and it will automatically direct debit each week.

For the shoppers, the idea of spending $60 in one go might seem a bit too much, but the idea of spending $15 per week seems quite manageable.

So, what’s my take? Basically as a consumer, I’m not keen. I think for those not used to managing money, it could be an easy spending trap to fall into.

Let’s say that you buy something this week and commit to $15 a week and receive your new purchase. Awesome. You have your sweet new pants and are wearing them around, looking amazing. The direct debits will come out of your account each Monday for 4 weeks and everything is manageable.

The problems start when you find the next nice shirt/necklace/jacket/insert pretty shiny thing in here. A week later you do the same thing, and then a week later you do it again, and before you know it you have several direct debits coming out of your account each week.

I think that it makes it super easy to spend the money and therefore easy for you to over-commit and potentially spend more than you normally would.

I personally would be happy to pay the $60 upfront and receive my item. I know what I have spent and can be sure that I have enough in my actual account to cover it and then I won’t have random amounts of money coming out of my account for the next few weeks.

For those who have read anything on cashflow management I have written, I wax lyrical about the idea that you should be putting aside money for absolutely everything each week, including things like clothes. For me, the money set aside for clothes purchases happens at the start of the year, so I don’t have to decide if I can afford a new dress or not because I have been putting aside money each pay period to ensure that yes, I can buy the dress. It might seem like planning overkill to some, but for myself and for my clients, it actually brings a sense of calm and freedom about what purchases I can afford.

As always, I’m happy to share the Bounce Budgeting calculator, so if you want a copy, let us know and we’ll send it to you. Cash management is the base for all things financial in your life. If you earn money, you owe it to yourself to learn how to manage it.

So for me, afterpay is a miss. For businesses, hats off and slow claps all around because I think from a marketing standpoint you will definitely get more dollars in the door because of it. For the average consumer, just watch your spending and don’t forget about the purchases that you made 3 weeks ago. The last thing you want is 12 direct debits coming out of your account, a truckload of awesome clothes, but you are living on noodles until the next payday.

This post is from our resident Financial Planner Cara Brett, check out her details in the About Us section.

Posted in: Cara Brett, Financial Planning