Spend and Repeat! Young Adult’s Experiences with Buy Now Pay Later Services

A comprehensive review of the BNPL sector in Australia was undertaken by the Australian Securities and Investment Commission (ASIC, 2018). Among their key findings were that approximately 60% of users were aged between 18 and 34 years old. A further study found that 18 to 24-year-olds represented 23% of BNPL users (ASIC, 2020). More recently, it was reported that young people (18-24 year olds) made up approximately 25% of all BNPL users, with 53% of young people reporting having used BNPL services (Gallo Cordoba et al.., 2022).

Young adults use of BNPL tools at higher levels than any other age demographic in Australia which reflects a shift in young adults perceptions and interactions with the finance sector. They are reported to have a heighted distrust of bank and are “bank-xious” (Sawatzki, Zmood and Brown, 2020, p. 20). Young adults also view other more traditional forms of consumer debt e.g. credit cards, as risky debt instruments (Deloitte Australia, 2018) and have reduced the use of credit cards in favour of BNPL services (Gerrans, Baur & Lavagna-Slater, 2022; Khadem, 2020).

BNPL is marketed to young people as contemporary digital finance tools aligned to supporting a consumer lifestyle but without the negative associations of traditional forms of debt and credit (Farrugia et al.., 2022). This marketing has been found to “increase spending and normalises the use of BNPL credit for that consumption” (Aalders, 2023, p. 941) facilitated by smartphone apps used by BNPL schemes (Boden, Maier & Wilken, 2020; Johnson, Rodwell & Hendry, 2021). This is a seductive combination for young adults, with BNPL encouraging impulsive consumption (Fook & McNeill, 2020) resulting in higher levels of debt which is correlated with higher levels of financial anxiety (Drentea, 2000) and mental health issues (Johnson, Rodwell & Hendry, 2021).

Bad debt levels associated with BNPL are approximately four times higher in Australia compared with Europe (Johnson, Rodwell & Hendry, 2021; Leonida & Muzzupappa, 2018). When young adults are labelled as “in debt [this] creates particularly severe implications for wellbeing, linked to anxiety, shame, and helplessness” (Coffey et al.., 2023, p. 18). Unmanageable financial debt has an impact on an individual’s overall wellbeing. For example, Netemeyer et al. (2018, p. 68) reported “that perceived financial well-being is a key predictor of overall well-being …” and Johnson, Rodwell, and Hendry (2021) stated that consumer debt can cause harm when it is unmanageable. Recent findings in behavioural economics also show that financial constraints themselves lead to lower productivity and result in detrimental decreases in earnings, beyond the potential impact on health (Kaur et al., 2019).

Financially literate individuals have been reported to view the risks of using BNPL as being greater than any benefits (ASIC, 2018; Gerrans, Baur & Lavagna-Slater, 2022; Wilkins et al., 2015). However, these results are not translatable to young Australians. Young Australians aged 15–24 years old were found to have the lowest financial literacy levels except when compared to Australians in their 80s and 90s (Gerrans, Baur & Lavagna-Slater, 2022). Furthermore, examination of financial literacy among young Australians has focused on traditional finance tools and financial concepts (interest, inflation, insurance, investing, superannuation etc.) (Ali et al., 2014; Zwaan & West, 2022). A shortfall of research is that is that it does not address financial literacy around emerging finance tools and concepts, including BNPL.

There is advocacy to include BNPL within high school financial literacy programs to address raise financial literacy of young people and ensure that the benefits and risks of BNPL are understood (Sawatzki, Zmood and Brown, (2020). This is of particular importance for young adults who are considered to be at greater risk of getting into situations where their debt levels associated with their BNPL purchases are unmanageable. Cook et al. (2023, p. 250) argue that BNPL services are framed more as a “way to pay rather than a form of debt” and that this is confusing. Financial literacy aimed to support young adults starting their personal finance journey should address this and underline BNPL as a financial debt so where possible young adults can understand the potential impacts of the reported negative consequences on their well-being.

Lower financial literacy among young adults is also further compounded by gender. Females have been found to have lower financial literacy rates compared with males (Preston & Wright, 2019; Preston & Wright, 2022). The gender gap in financial literacy results in differences in financial behaviours (Goyal and Kumar, 2020). This has implications as to how females and males use financial tools. Whilst there is a large literature in this area, we were not able to identify any papers that examined the impact of gender differences of young adults in BNPL use.

We have focused on the key themes in the current literature that are pertinent to a contextual understanding of the motivation of our research. The key contribution of our work is a deeper understanding of how young Australians adults engage with BNPL and how this aligns to their current financial practices and behaviours and their future and financial aspirations and financial planning. We also explored if financial practices and behaviours differed by gender. Through identification of specific practices and behaviour of this demographic cohort we are able to provide recommendations key areas in financial literacy/education that will potentially ensure its relevance and effectiveness for young Australians.

The survey was administered through Qualtrics (a third-party company). Ethics was approved by the Queensland University of Technology (QUT) Human Research Ethics Committee (QUT ethics approval number 3523, December 2021). There was no financial incentive paid to survey respondents, however Qualtrics does offer incentives and rewards to its registered user research panellist for completing surveys.

The online survey target population was young adults aged 18–25 years living in Australia. The survey was opened during a three-week period (May 2022). Two screening questions were used to ensure the respondents were between the ages of 18 and 25 and that all respondents had experience using BNPL services.

There was a total of 366 online survey responses. Unfinished online responses (n=36) and response completed in less than 3 minutes (n=22) were removed. The final number of completed survey responses that this analysis is based on is 306.

Final survey data was analysed using R software. Socio-economic characteristics of the survey respondents are presented in Table 1. Further analysis was conducted across a number of dimensions (including the reason for using BNPL, money owed on BNPL, association of BNPL as debt, engagement in financial budgeting activities, rating of ability to budget finances, financial literacy training and consideration given to longer term financial security). These results are presented in Tables 1−6 and Figures 2−4.

Figure 2.

Figure 3.

Figure 4.

Data is presented for female and male responses. The number (count) of survey responses for each survey question, sub question or attribute is given in the tables below. This is denoted as n=#. For example, where n = 256, this means that there were 256 responses to that survey question or sub question (or attribute) by that gender. The sample population was heavily skewed towards females. To address the skewness of the data female and male responses are presented as a proportion (%) of the females responses or males responses for a survey question, sub question or attribute divided by the total number of females or males that responded to the survey question sub question or attribute (denoted as n=# in the Tables showing results).

Statistical difference between female and male responses was tested for all quantitative data. The standard notation used to denoted results that are statistically significantly different between females and males, e.g. statistical significant different at 1% level (***), 5% level (**) and 10% level (*).

There was insufficient data to reliably test beyond the male and female gender categories. Nonbinary survey responses and options choices “other” and “prefer not to say” were not included in the data and statistical analysis.

Open-ended questions were analysed to identify any themes or insight not captured in the survey responses.

Survey respondents were asked why they use BNPL (attraction) and were able to select any of the options that applied from a pre-populated list. The disaggregated results for males and females are presented in Table 2.

The top attraction of BNPL reported by both females and males, was “used to spread payments” and “way to manage money”. There was no statistical difference between the two groups. This result was not unexpected. Using BNPL as a soft financial management tool is the main attribute flagged in BNPL advertising. “No interest payments” and “easier than saving” ranked 3rd and 4th for females and were both statistically significantly different between females and males at the 10%level (p value = 0.08266 and 0.08474 respectively). That is, a higher proportion of females compared with males were more likely to use BNPL because of these attributes. There was no a priori reason why females would rank these attributes higher than males. However, this may reflect differences in financial literacy training between females and males (see Table 6) discussed later in this paper. Fook & McNeill (2020) in their study of females in the same age cohort showed a strong tenancy of females that use BNPL to impulse buy compared with females that do not use BNPL. Our results, suggest that young adult females may irrationally justify BNPL by overriding the normal signals that would stop an impulse purchase, e.g. you do not have the money (savings) to afford the purchase.

Survey respondents were asked “how much do they owe on BNPL?” This was considered a better indicator of the total level of “debt” that survey respondents currently had on BNPL compared with asking survey respondents to report spending on BNPL, which may have only captured their last purchase (Table 3).

Female BNPL outstanding debt was on average $376; the median was $150. Males BNPL outstanding debt was on average $192; the median was $110. The difference in indebtedness between females and males was significant at the 1%level (p value = 0.0005), meaning that female survey respondents had a significantly higher level of debt compared to males.

We also asked how concerned survey respondents were about their level of BNPL debt. Despite having greater BNPL debt, females were less concerned about their BNPL later debt than males. This result was significant at the 1% level, p= 0.004.

The indebtedness of females is further sharpened as females earn less that males in every age category. Whilst the gender pay gap is less pronounced in younger adult cohorts e.g. females under the age of 20 year earn approximately 2.5% less than their male counterparts, this gap increases with age. For example, the wage gap for females aged 25-34 years is 12.5% (Workplace Gender Equity Agency, 2022). The higher level of BNPL debt of females could with the fact that they are less concerned about that debt compared to the males surveyed, suggests that they are more susceptible to leaning into a BNPL debt culture which they internally justify through using BNPL as it is easier than saving (as reported above). This mindset has the potential to further exacerbate further (i) female financial disadvantage relative to males and (ii) increase the risk of financial insecurity or disadvantage in their future.

Our study also explored whether young adults considered the money they owed on BNPL to be a form of debt.

Approximately 35% of females and 45% of males did not consider or were not sure if BNPL was a form of debt. There was no statistically significant difference be females and males. BNPL has been marketed as a financial tool that enable responsible consumption from non-predatory or responsible lenders (Aalders 2023). This has potentially normalised or, at best, muddied the waters around the perception of BNPL as a form of debt by young adults. It remains critical to raise debt awareness for young adult BNPL users. BNPL obligations can impact an individual’s longer term financial security through informing credit rating scores and impacting (both negatively and positively) an individual’s ability to secure future credit applications, including personal loans and home loans.

Survey respondents were asked about their ability to budget their finances by indicating how often they engaged in (frequently, occasionally or never) the following behaviours (i) keeping track of their spending, (ii) spending within a budget, (iii) meeting a monthly saving goal and (iv) saving for an emergency. The results are presented in Figure 3.

The responses between females and males were not statistically significantly different across all four behaviours. The highest positive financial behaviour was keeping track of spend (68% of female and 52% of male respondents). In contrast, approximately 44% of females and 60% of males occasionally met their saving goal; and 29%of females and 20% of males never met their monthly saving goal. This result was potentially driven by the fact that 45% of females and 37% of males only occasionally spent within their budget; whilst 10% of females and 12% males never spend within their budget. This suggests that the perceptions of keeping track of spending was either over-stated or that this cohort had a different understanding of what that meant in practice. Banking apps provide alerts on spending and whilst this may an individual the illusion of tracking spending, it is a passive (observational acknowledgement) of spending if not acted upon.

Survey respondents were asked to rate their ability (high, average and low) to (1) budget their finances, (2) save money and (3) manage debt. The results are presented in Figure 4.

The responses between females and males were not statistically significantly different across the three competencies. Most survey respondents rating their ability average across the three domains between 40-60%. Approximately 20-30% of survey respondents, rank their ability to saving money and managing debt as low. These results are not inconsistent with survey respondents’ responses, that, in practice, they only occasionally spend within a budget and meet their saving goals (refer back to Figure 3). This result is also well established in the financial literacy literature, i.e. that higher levels financial literacy and person’s ability to better manage their finances are positively correlated (Goya and Kumar, 2020). This further supports the narrative that BNPL providers, through “soft” predatory practices (e.g. no interest payments and easier than saving payments) are able to exploit and are normalising young adults’ financial skills deficits.

We asked surveyed respondents if they think about their long term (5 years) financial security. Our results indicate that between 85% to 94% (males and females respectively) think about their financial future. The results are presented in Table 4.

We determined that female survey respondents gave more thought to their long-term financial security than males. This was significant at the 5% level (p value = 0.003). This result is paradoxical given females’ current financial behaviours (as reported above. e.g. had more BNPL debt compared with males, and are not as concerned as males with their level of BNPL debt) do not align to this aspiration. However, it may be indicative that females are aware that their behaviours today impact their future financial security, and this result may potentially proxy a greater concern for their longer-term financial security (linked also to lower future earning potential etc. as explored above).

If survey respondents answered yes to thinking about their long-term financial security, they were asked to state the reason why. A thematic summary of qualitative responses are presented in Table 5. Financial security is the most frequently cited response (40%).

We also provided survey respondents the opportunity to tell us how the financial behaviours that they currently engaged in, both negative and positive, would impact their financial situation five years from now. Approximately 50% (n= 211) indicated that overspending (including binge spending, impulsive buying, spending or spending money on “useless”/non essentials/luxury items or “random stuff”) would negatively impact that financial situation in five years’ time. Approximately 10% explicitly cited BNPL as a behaviour that would negatively impact their future financial situation. Examining the empirical causation between behaviours and BNPL was beyond the scope of this research, but other studies have established that self-control and financial illiteracy are positively linked to greater use of high cost credit accessible credit options (e.g. Gathergood, 2012).

Approximately 55% indicated that they were engaging in some level of saving (from a small amount each week to putting away 50% of their paycheck) or investing (where this was either denoted by type of investment e.g. house or the generic statement “investing”). Other studies (e.g. Walsh et al 2021, 2022), also found saving goals are prevalent positive behaviour to achieve future financial security.

We asked surveyed respondents if they have ever received any financial literacy training (this included how to budget, how to borrow and save money). The results are presented in Table 6.

The difference between financial training of females and males was significant at the 5% level (p value = 0.01714), indicating that a larger proportion of males had financial literacy training compared to females in this survey population.

Low levels of financial literacy training is also consistent with females reporting that they used BNPL because it was easier than saving, has no interest and also had higher level of BNPL debt (all of which were statistically significant compared with males). Whilst there is a need to improve financial literacy that includes BNPL for all young adults, our results suggest the importance of targeting financial literacy training at young female adults.

Our study had a small sample size (n=308). It was assumed that the relative proportions of BNPL by females and males are reflective of their respective practices and behaviours, noting that the sample was bias towards females. This bias was partly a reflection of the data collection tool (females are over presented in online surveys), but does align to reports that females are more likely to use BNPL compared to males. Our survey was of young Australian adults who used BNPL. Young Australian adults who did not use BNPL were screened out. We therefore cannot draw any conclusion as to if the financial practices and behaviours of BNPL users in our sample differ to non BNPL users.