Gen Z’s Dangerous Addiction to ‘Buy Now Pay Later’

I’m sorry to add something else to our collective worry list, but alarm bells are beginning to ring about the wisdom of Buy Now Pay Later schemes used by Generation Z. All of the financially challenged young people I work with are using something called Klarna. ‘I’ll Klarna it’ or ‘I’ll pay with Klarna’ or ‘I bought it with Klarna’ are phrases I’ve heard far too frequently for comfort.

One example. I worked with a 20 year-old man to teach him life skills: how to wash, how to use public transport, how to talk to people (he’d lived a sheltered life with no school and only his mother for company). One day he showed me his new MacBook. I looked at my own ancient Lenovo and he caught my confused frown. “I Klarned it,” he explained. My work with him ended six months ago when he told me that the DVLA (he meant the DWP) had decided he didn’t need to work and nor did he need to look for work. To celebrate he was taking his Mum out for pizza, “On Klarna.”

It was one of those dispiriting conversations that lingered, nagging at the back of my mind. But in recent months more and more young people I work with use Klarna as the default payment setting for clothes, for trips bowling, to get their nails done. One mother used Klarna for the weekly groceries in the week that she paid for her daughter’s first passport.

When I have asked my peers, friends and family what they know of Klarna, I have been greeted only with blank stares. Klarna has not yet reached complacent Middle England. For the uninitiated, Klarna is a cool Swedish financial services company that offers Buy Now Pay Later (BNPL) flexible payment options, whereby you can choose to pay in “three interest-free instalments, pay the full amount, in 30 days or with financing”. It boasts of 100 million active customers and 2.9 million transactions a day. Big brands such as ASOS, Deliveroo, H&M and Nike lend their support, whereby you can pay using Klarna at the online checkout. Otherwise, you download the app and pay with Klarna at the till, and repay the amount to Klarna in small instalments. It is supposed to be only for 18-plus but I know younger children who have successfully downloaded it and used it to pay for cinema tickets and pizzas. On the Apple app store it is listed as for ages “4+”. As many as 56% of 18-27 year-olds have used BNPL services.

Thinking about this issue reminded me of a horrible conversation I had once with a New York financier at a wedding. It was 2006, I was pregnant and my husband and I had just bought our first house – a terrace. We had saved for our deposit for two years living on pasta pesto and batch-frozen carrot and coriander soup. I must have talked about this to the New York financier I was put next to and I remember him becoming animated about how awful our situation was, how terrible that we had to save and that in America they have these amazing sub-prime mortgages that make it easier for people to buy houses. I must have winced at this and said, perhaps this is not a good idea. He then began tearing into me saying how heartless I was, denying poor people the right to buy houses. “That is typical of you stuck up Brits – you just don’t want the poor to succeed. You don’t even want them to own a house.”

I fear the same vibes as the New York financier emitted might be shared in relation to any concern raised about BNPL schemes that particularly target young people. Concerns about the bubble gum pink “Shop Now. Pay Later.” app fundamentally altering a whole generation’s attitude to debt, savings and deferred gratification will be savaged by both Left and Right. From the Left will come: ‘Don’t judge bigot: why can’t a generation impoverished by the Tories have nice stuff / go on holiday / eat out?” From the Right: ‘We are all adults here, let people choose how to live, and let capitalism flourish.’

Why does it matter? I can quickly think of two reasons:

1. If payments are late, fees are incurred. If young men who can’t wash are regularly using Klarna, I suspect he, and other financially challenged Gen Zers, might miss the repayment schedule.
2. If Gen Zers build up personal debt that affects their credit scores, how much harder will it become for them to attempt the already almost impossible and buy a house? An indebted, rental population does not a happy society make.

Starmer and Reeves – the Prime Minister and Chancellor – seem to be relaxed about the national debt of £2.7 trillion and monthly interest repayments of £16 billion. What does it matter if a bunch of Gen Zers are paying for pizza in three instalments? Perhaps actual money is unnecessary and, like the Incas, we can live without it. Or perhaps not, and a similar sub-prime calamity awaits us.

Mary Gilleece is an education support worker and her name is a pseudonym.