The way a product is labelled can change how consumers think about it. “No added sugar” or “99% fat free” can make food sound healthier than it really is.
Authors
- Aaron Gilbert
Professor of Finance, Auckland University of Technology
- Ayesha Scott
Adjunct Senior Lecturer, Business School, Auckland University of Technology and Senior Lecturer in Finance & Financial Planning, Griffith University
- Qian Wang
PhD Candidate in Economics and Finance, Auckland University of Technology
- Sommer Kapitan
Associate Professor of Marketing, Auckland University of Technology
The same might apply to buy now, pay later schemes. Marketed as a convenient way to pay for purchases over time, they are fundamentally still a form of debt.
Products such as Afterpay , Klarna and Zip (which recently exited the New Zealand market) offer consumers access to items they may not be able to immediately afford.
Speedy approval and an easy checkout add to the appeal, but can also encourage overspending, while missed payments can bring late fees and mounting debt.
Part of the product’s attraction, particularly among younger consumers wary of credit cards , has been the idea that it is different from conventional borrowing.
Our new research set out to interrogate this further: if it feels more like a normal payment, does that affect how people use buy now, pay later? And might better financial literacy protect them?
Debt by another name
Buy now, pay later emerged in the early 2010s and quickly became commonplace in New Zealand. It can now be used for everything from fast fashion and takeaway food to dental treatment.
Typically, consumers borrow relatively small amounts and repay them over four fortnightly instalments, without interest or establishment fees. Providers charge vendors a small percentage (2% to 8%) on each sale, but also earn substantial revenue from late fees charged to consumers.
Approval has traditionally been fast and easy, making these services accessible to people who might struggle to obtain conventional credit.
For years, the law treated this form of borrowing differently, too. Because providers generally charged no interest or credit fees, their products fell outside New Zealand’s main consumer credit law.
That changed in September 2024 when buy now, pay later was brought under the Credit Contracts and Consumer Finance Act . Users gained many protections applying to other borrowers, although providers remain exempt from some requirements applying to conventional credit.
A recent review by Consumer NZ and FinCap concluded those reforms have not reduced financial harm among users. It called for further protections, including mandatory affordability assessments and tighter controls on late fees.
The product indeed still carries risks. Its use has been linked with overspending, financial hardship and using other debt to meet repayments.
Regulation may have changed how this form of credit is legally treated. But that doesn’t necessarily mean consumers have changed how they think about it.
When perceptions guide behaviour
We surveyed young New Zealand adults to investigate how they perceive buy now, pay later, and whether those perceptions were related to how they used it.
The results suggest the marketing message is working. Four in ten respondents didn’t see it as debt, while nearly half thought it carried fewer consequences than other forms of borrowing.
Among users, 43% had used other forms of credit, including credit cards, to meet repayments. Just over half (55%) had incurred late penalties, and nearly one in eight had done so three or more times.
Those who failed to recognise the product as debt were more likely to borrow elsewhere to meet repayments, while those who thought it was cheaper or carried fewer consequences used it more frequently.
The most surprising findings concerned financial literacy. Those who reported receiving financial education were less likely to recognise buy now, pay later as debt, while those with higher financial capability were more likely to use other forms of debt to meet repayments.
Interestingly, those who borrowed elsewhere to make repayments were less likely to incur late fees. This could suggest some consumers recognise the immediate cost of missing a payment, but manage that risk by shifting the debt elsewhere.
Greater debt-related knowledge, however, was associated with better use of the product.
Why might financial education and capability fail to protect consumers in the ways we might expect? One possibility is that people struggle to apply their knowledge in unfamiliar financial contexts.
Learning to look through the label
Our findings point to a larger challenge for financial educators: teaching people to apply what they know about existing financial products to new forms of financial technology.
That’s becoming harder as financial products evolve faster than financial education. Twenty years ago, understanding savings accounts, credit cards, mortgages and managed funds covered much of the financial landscape consumers were likely to encounter.
Today they face buy now, pay later products, cryptocurrencies, non-fungible tokens – digital assets whose ownership is recorded on a blockchain – and exchange-traded funds that allow investors to buy into collections of assets through a single investment.
Educators cannot realistically explain every new product before consumers encounter it. Financial education therefore needs to do something more fundamental: teach people how to look through the label.
Consumers should ask: What obligation am I taking on? What can I lose? What happens if things go wrong? And who benefits if I misunderstand the product?
Financial literacy is still vital. Our findings show debt knowledge and practical money-management skills were associated with better outcomes, including fewer late fees and less reliance on other credit to meet repayments.
But knowing how traditional financial products work is only useful if consumers recognise when those lessons apply to something new. That becomes harder when a product is marketed to feel simpler, safer and different from conventional borrowing.
Financial education therefore needs to equip consumers to recognise the underlying financial relationship, whatever name or technology is attached to it.
Sometimes debt by another name is still debt.
