Pay It Back Later

Over the last few years, I have been keeping an eye on the Buy Now, Pay Later (BNPLs) services out there and reading articles from time to time. They have been a mild issue earlier, but since Covid restrictions, handouts and then "back to work" avoidance, they are finding that they are getting into trouble, because they they aren't turning a profit. Even though they have increased in usage massively over the last few years, the problem is, people are defaulting on what they have borrowed.

Oops.

An economy running on debt is always going to fall into problems eventually, because at some point, there is not enough resources to service the debt repayments. And, with the largest user groups of these services being younger people and those who are financially illiterate, it is inevitable that they are going to struggle. After all, people are using BNPLs to pay for food and medicine, which doesn't demonstrate the picture of the financial health of the user, does it?

Providing debt services only works when there is the chance of getting that debt repaid. It is a bit like in the movies where someone is killed who owes a large debt to a bookie, and they go to the bookie as a suspect. However, the bookie explains that they have a motive to keep them alive to get their money back, not kill them. They don't want to have to write off bad debt.

But increasingly, these BNPLs are taking on bad debt. For instance, Afterpay is one of the largest in Australia and has a bad debt rate of just under 14% - which is massive! This means that in order to turn a profit, they have to not only cover all their costs, but also the bad debt. And they are unable to.

However, while the BNPLs can disappear, this doesn't actually solve the problem for the people who instantly gratified and delayed their pain, because they still carry the burden of that debt with them. This is going to affect their ability to get loans in the future, but also, it means that they are likely to become even more reliant on social services. This means that their bad debt get spread around all the people who have acted with financial responsibility.

Whilst the idea of "society" means also taking care of the most vulnerable in the community, this is also a kind of debt system. The more people who shift into the vulnerable state, the more resources it takes to look after them and eventually, there just aren't enough to cover the debts. This is why they are looking to "tax the rich" as if that is going to solve the problem, when it is just the tip of the iceberg in terms of the debt burden.

Not only that, tax money doesn't actually go to improving wellbeing anyway, as politicians are beholden to the corporations that enable them, so in order to keep their jobs, they have to also keep the system going. So, they take on more debt, but don't spend it on improving the lives of the many, but rather, improving the bank accounts of the few.

I had a discussion with my wife the other day about how the government here spends its money and how it doesn't actually work in our best interests. For instance, they are making hundreds of millions in cuts across social services including health care, whilst spending tens of billions on military spending. And I get it, people here are afraid of Russia, but the value of Finland is in its people, not in its land. If the degradation of society keeps sliding in the direction it is, at some point, what is there left to save?

Human debt.

We can't increase wellbeing in a debt system across the board, because even if we can manipulate it for a short period of time by using debt to artificially "inflate the value", eventually the line of credit runs dry, and the creditors are making their demands with interest. And, this is why no government is able to keep increasing standards of living for all citizens, because eventually they don't have enough to go around. This has been further sped up by corporate taxation practices, which takes more tax money outside of the places it was earned, without having to put anything into the local community. Less money for the government, less tax-paying jobs, more money going outside the borders. Another debt-driving system.

If we consume more than we grow, we are living in a debt system - we are living outside of our means. It is like filling up a bucket with holes in it. If more is leaking out than is going in, eventually the bucket is empty. The economy is the leakiest bucket of all, but what leaks out isn't lost into the ground to become part of the water table again - it is captured by the fraction of society who has the largest, most well-sealed buckets in history.

If only people did the right thing.

But, that is never really going to happen, because the incentives of the economy aren't aligned to do the right thing for society, they are to do he right thing for the individual. No one seems to want to acknowledge themselves as a part of the problem in this, but while we keep on finding ways to gratify our personal desires, we are putting less into the communities in which we live. We isolate ourselves indoors and behind screens, we don't know the neighbors, and we don't volunteer at the schools - and then we wonder what has happened to the sense of community.

BNPLs prey on individualism, and instant gratification habits. They drive FOMO, and manipulate people who don't read or understand the fine print. And people sign up because they believe that they are going to be taken care of in some way, shape or form by society, because that is their "right" as a member of the community. What community are we members of these days exactly, for us to feel that they should take care of us?

We are all going to pay later.

Taraz
[ Gen1: Hive ]