Should you buy now, pay later for back to school? | Smart Change: Personal Finances
Inflation has weighed on family budgets throughout the summer, and the last item to suffer is school supplies.
According to the National Retail Federation, which released its annual back-to-school survey in July 2022, shoppers are feeling the pressure, cutting back on spending in other categories and working longer to cover school supply costs.
They are also looking for ways to maximize their money, but sales and discount coupons are no longer the only options.
Some are turning to “buy now, pay later,” a type of payment plan available at most major retailers, to spread out their back-to-school shopping, according to the survey. Although BNPL plans may be interest and fee free if you pay on time, they are still risky and there may be better ways to manage your cash flow.
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How do BNPL payment plans work?
BNPL plans vary by provider, but they all split your purchase into smaller installments, which you pay over time.
The most popular plan is the four-way payment, offered by almost all major BNPL providers. With the quarter payment, your purchase is divided into four equal installments. You typically make the first payment at checkout, with the remaining three payments automatically billed to your original payment method every two weeks until you’ve paid in full.
For example, let’s say you have a shopping cart totaling $600. You’ll pay $150 at checkout, then three remaining payments – each $150 – over the next six weeks.
Popular BNPL providers like Affirm, Afterpay, and Klarna don’t charge interest for using their four-part payment plans, so if you pay on time, there’s no additional charge. If you miss a payment, some providers charge a fee, which increases the cost of your purchase.
BNPL options are integrated directly into retailer websites, such as Target, Staples, Best Buy and Walmart. When shopping online, you may see the option to use BNPL at checkout. If you sign up, you’ll complete a short application, which doesn’t include a credit check, so there’s no risk to your credit score.
Approval decisions are instantaneous and may depend on factors such as the money available on your debit or credit card, the cost of your purchase, the store you are shopping at, and your history with the supplier. Credit score is usually not a deciding factor in your application, so if you have fair or bad credit (credit score of 689 or less), you may still qualify for BNPL.
You can also shop in person by downloading a BNPL virtual card from the provider’s mobile app, which you scan at checkout.
Should BNPL be used for school supplies?
Robert Bertman, a Clayton, Mo.-based certified financial planner who works with families, says many of his clients have used BNPL, and while that’s not automatically a bad thing, he urges caution.
Because smaller installments make it look like you’re spending less than you actually are, it’s easy to get overwhelmed.
“It’s a psychological trick,” Bertman said. “It’s disguised as trying to make things more affordable for people, but it can also trick people into spending more than they intended.”
He recommends keeping the total cost of your purchase front and center by asking yourself: If you could afford to pay now, would you? Or is there another place you’d rather put that money?
Andrea Woroch, a consumer credit and budgeting expert based in Bakersfield, Calif., says she sees people get into trouble when they try to manage multiple BNPL plans at once.
Although the payouts are often small, they add up. And with more than one plan running at a time, it’s easy to fall behind or have an overdraft on your account, which can result in late fees from the BNPL provider and penalties from from your bank or credit card company.
If you want to use BNPL, Woroch recommends saving it for an essential back-to-school purchase, perhaps the hardest to cover, like a laptop or tablet. Just make sure you can afford the installments.
Other ways to save for back to school
If you’re looking for more ways to ease the burden of back-to-school shopping, Woroch’s best advice for parents is to shop at home first.
Reusing old file folders, half-used notebooks, forgotten binders, and all those pens and markers you have lying around saves more money than you think. It can also help children learn the importance of money management.
“I know kids love having brand new things, but this is a great opportunity to teach them how to budget,” says Woroch. “Explain to them, ‘If we reuse this backpack, we can get the sneakers you really want.'”
In addition, by delaying your purchases, you will miss the high season of the start of the school year. When you go to restock, you’ll likely find deeper discounts as retailers try to clear their inventory.
For parents looking to cut spending across the board and make more room for seasonal expenses like school supplies, Bertman recommends counting transactions, not dollars.
For example, he often advises customers to reduce their weekly trips to the grocery store. Although the price per trip increases, monthly grocery expenses decrease, as there is less opportunity to overspend.
“I don’t know anyone who walks through the store without adding additional items to their cart,” he says. “The more often we visit a place, the more likely we are to end up with things we didn’t need.”
Start by determining how many times you swipe your card per day — morning coffee is one, groceries are two, dinner order is three — then reduce by one. At the end of the month, you can apply the savings to back-to-school purchases.