FINANCIAL literacy is crucial for everyone to make healthy choices for their finances but there are many temptations emerging from the market which only makes it harder to do so.
Some may even run into methods like relying on credit cards or loans to support yourself without understanding the consequences fully.
I, as a financial planner, have dealt with youth (university students) and mostly young working adults.
It appears that credit cards may not be so popular among youth because they were taught from young to avoid credit cards if they are unable to control their finances well.
Some had seen bad effects on financial health when misusing credit cards. Some people even avoid credit cards completely.
However, new services are popping up in Malaysia in the past few years which replace the function of credit cards.
The Buy Now Pay Later (BNPL) service is one of them. It is gaining popularity among Malaysians, especially the younger generation. This service is so new that regulation for the BNPL has only started in the beginning of this year.
BNPL service is a microloan with lower credit requirements compared to traditional loans. It’s an easier alternative to credit cards.
This service is designed to make it very convenient to spend. You get to make instant purchases without needing to pay on the spot. Some platforms offer low or no interest rate with flexible repayments to encourage people to use the service.
Oftentimes, you will be given exclusive discounts for your purchases when using BNPL transactions. It encourages you to spend more which then increases your borrowing if you make multiple purchases with it. As consumers, we often ask ourselves whether we should use this service?
This service definitely allows you to enjoy now and pay back later. This can potentially cause consumers to enjoy a lifestyle that they cannot afford. By using BNPL services, you have less money to spend in the next few months.
Consumers can easily get carried away and make multiple purchases with BNPL services at once. This could quickly lead to a serious problem like debt accumulation.
If you decide to use a BNPL:
- Ensure that you can afford the item at the point of purchase or pay for the item at one go and this service helps you to get extra deals and promotions;
- Read the terms and conditions carefully. Make sure you understand the additional rates, fees, and repayment terms before using the service.
When is BNPL not suitable:
- If you often miss payments or find it hard to keep track of expenses;
- Do not have good self-control when spending; and
- If you are in a situation where you do have enough money and are unable to afford the purchase. It doesn’t matter if the item is essential or non-essential.
While Buy Now Pay Later (BNPL) services may seem like an attractive option for making purchases with ease, they come with their own set of financial risks.
If you’re in a situation where income is not rising as fast as the inflation and cost of goods, then you need to focus more on managing expenses.
It is best to avoid relying on credit cards and services similar to BNPL if you have difficulties managing your cash flow.
These methods can be very dangerous and can be financially damaging if not used responsibly.
Overall, financial literacy is essential to help people understand the financial tools out there to help them make informed decisions about personal finances and avoiding bad financial habits. – April 24, 2023
Kimberly Law, CFP, IFP is the co-founder of Uno Advisers Sdn Bhd. She is also a licensed financial planner and a certified member of the Financial Planning Association of Malaysia.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
Main pic credit: Smart Investor Malaysia
