Buy now, pay later, to buy now, make a PROFIT.
What if you could buy something, and make more than you put in?
It feels strange to even think that, when you buy something for $100, you don't get "change" of $110 do you? After reading this article, however, you're going to be shocked to see, that in a way, you really can. As a Finance major, I strive to learn more about finance and all the ways to spend, save and make money. A fascinating (and yet dystopian) thing I came across was buy now, pay later (referred to as now on as BNPL). Buy now pay later is a tool used by consumers to buy everyday items for nothing upfront and paying the items off over a course of weeks/months. Companies like Affirm and After pay offer 0% interest on these payments, unless you miss a payment. If you miss one, you'll be paying back more than you originally paid. Think of these companies as loans for small things.
BNPL is mainly used by the younger generation, with 58% of gen z and 64% of millennials. Many criticize these companies for exploiting youthful teens with small purchases that can rack up debt. However, I see this as an opportunity for the young consumer, with a bit of financial knowledge and cash on hand, to leverage this and actually pay less.
So, how does this work?
Here's what the consumer will need to leverage BPNL (and for the strategy to work)
At least $5000*
Spend no more than 1.5/6% of the total high yield savings value a month**
Make payments ON TIME
Finance items purchased for 6 months or longer; the longer the better
A high yield savings account with at least 3-4.5% APY (the higher the better)
For a more helpful guide, I have attached this document: hhttps://1drv.ms/w/c/d60ac5913ba1a0c0/EXUi3vsYDHBFo6Q72C--DYQBdlcO0CCRg1YmNzYVTr-APg?e=KedOmB
1. You MUST, and I CANNOT stress this enough, to be FINANCIALLY disciplined. If you spend more per month, you won't make a profit.
2. Remember, High yield savings accounts APY % do tend to fluctuate long term (think 1+ year). They usually don't fluctuate (usually 0.25-.5%, 1% in extreme cases).
3. Make sure the BNPL company you use charge 0% on payments extending from 6 months+. Most don't but make sure to check.
4. Make sure that your high yield
savings account does daily compounding, NOT monthly or quarterly. This might make your overall profit smaller. Many high yield savings do daily, but again, make sure to check.
5. You need to make sure the amount you have in the bank is high enough to avoid maintenance fees, which vary by bank, but shouldn't be an issue as long as you see what the minimum balance needed to avoid them is.
6. Make sure your high yield saving account doesn't have any transfer fees. Most don't but it's never a bad idea to double check.
Now, I know that was a lot of financial jargon to read but hopefully you understand a majority of it, because now we get into the fun part: making a profit on buying an item. That's right, not a discount, not free, but you make a profit, a real profit on to of what you paid for the product! So, let the fun begin!
The simulation!
$10000*
$150 purchase every 6 months
Say I found a charcoal grill for exactly $150 in this simulation (try to aim for a little less than exactly $150 in real life). I paid using either affirm or afterpay or another BNPL company that offers 6-month financing. This means that I pay off the grill in six installments, so $25 a month. I found a high yield savings account with 3.75% APY. Now, APY is given every single day, so think 3.75/365. However, this is also good news, as it means we can pay off the $25 each month with our APY each month!
- Let's run the simulation:
Notice how the interest earned is higher than the monthly payment of $25? That means we're making a "profit" each month. At the end of the 6 months, I will have made 180.55 in interest, or a "PROFIT" of ~$30, or 20%! Isn't that amazing? Not only do I get to keep the charcoal grill once I buy it, but I also get an extra $30 for simply from interest! It's weird and strange, I know, I felt the same way when I discovered this too.
The amazing possibilities in this strategy
Now that the shock of earning a profit from a purchase is gone. I would like to again tell you what this means for you. This means, you can spend $150 every 6 months, or $300 a year free of charge! Also, Let's say the high yield saving accounts rates change. Let's assume a worst-case scenario and the great depression happens and your high yield savings APY goes from 3.75% to 1.75% (again, very unusual to happen). If the APY changed to 1.75% you could still afford $150 a month and get a 57% discount on the items (~$86 in interest earned over 6 months 86/150=~57%). If you wanted to play it safe, you could also simply spend less per month.
MAXIMIZE MORE
There are ways to maximize the potential benefits here too! One way is by re-investing all "profits" made from purchasing the item This way, you could grow your high yield savings and continue to save your money! It won't be much, but it won't decrease your balance either!
Why is this important? Why does it matter?
Some might be asking "why not just purchase the item outright and invest in a high yield savings account at the same time?" However, this neglects a few factors, the major one being youth. Let me explain, as a young person myself, I want to do a bunch of things and buy things all the time, however income is usually hard to come by so purchasing something feels awful. A majority of people my age also uses BNPL so the cost of something feels "cheaper" as we have a relatively small amount of money to begin with. What I like about this strategy is that it can work with something as low as $5000 (relatively speaking), giving you an extra $12.5 per month (or $150 a year) while growing savings over time. Gen Z is known for "doom spending" that is, spending lots now because of pessimistic outcomes of the economy. While I see their perspective, this solution creates a hybrid save/spend strategy.
This strategy helps combine long-term saving with living in the moment (particularly from 18-30). As long as a Genz-er can scrape up a few thousand, maybe in a summer, they can go out bowling, eat with friends, or go on "mini vacations" and share the expenses every few months while increasing their savings over time. If 10 friends with $5000 in a high yield savings use this strategy, you have $125 you can spend a month! I am aware that the amount provided every month isn't much, but even still, it can offset larger purchases in the long run if you have the money for it. This can also teach Gen z about saving and financial concepts early on, helping them in their adult lives even more. Also, did I mention this strategy can help build credit early on? Some companies like Affirm may report 6 month "loans" to credit bureaus, which could help young people by boosting their credit scores. However, this can also backfire if you don't pay the loans off (again, make sure you are FINANCIALY disciplined, and will only spend the amount per month given).
I do want to say that no, you aren't technically making money from purchasing something (chipotle is not paying you to eat at their store). And explaining how high-yield savings accounts pay you interest might be too detailed for a LinkedIn article, However, 40% of gen z make one BNPL purchase a month. If they're going to buy the small things anyways, they should realize they can build their wealth and enjoy moderate spending! With a clear budget per month, an easy (ish) set up and steps, this strategy can help Gen Z, Millennials, and everyone else can save, budget, and have fun all at the same time!
**To make it worthwhile, otherwise you're only spending $2, or $3 a month.
*You can also spend 1.5% every 6 months instead
DISCLAIMER! I am NOT a financial advisor
Survey finds Gen Z is doomspending, not saving | Fortune
https://www.cnbc.com/select/why-high-yield-savings-account-interest-rates-fluctuate/
APY accuracy in ads and rate sheets | Bankers Online
2024 Buy Now, Pay Later Trends Study | The Motley Fool
Affirm | Buy now, pay later with no late fees or surprises
Buy Now Pay Later with Afterpay
Federal Funds Rate - 62 Year Historical Chart | MacroTrends
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