The Current - Can "Buy Now, Pay Later" lead to money problems?

Episode Date: December 8, 2025

As we all gear up to spend money on gifts this holiday season — we might be tempted by the many retailers offering some sort of "buy now, pay later" program at their online checkout. Recently, Paypal has started offering it in Canada. And while it can be appealing, as an interest-free way to purchase big-ticket items, financial experts Shannon Lee Simmons and Bruce Sellery warn that it can also lead to overspending — as we indulge in an ever-escalating list of "wants" as opposed to "needs."

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Donate at lovescarbro.cairbo. This is a CBC podcast. Hello, I'm Matt Galloway, and this is the current podcast. A winter coat, shoes, bags, jackets, a PlayStation, just some of the items Lee Dizan has bought for himself recently using Buy Now Pay Later Payment Options. The offer is simple. You pay over time in multiple payments rather than all at once up front. Lee is 40 years old, lives in Toronto.

At one point, he had so many purchases on the go through Buy Now Pay Later arrangements. he couldn't remember what he was getting charged for. I am going to be honest in saying that it could be a deck thing. It got to a point where I thought when I'm checking my account and I would get questions in my head, why am I getting these notifications? And then I would go back to these platforms. And they would say that, oh, you're going to be debited

in this account with the following amount. So I was like, oh, yeah, I remember. Lee still uses by now pay later plans, but he says that he's now thinking twice before deciding to buy something that way. After that slew of, you know, jackets, shoes, bags. After that, I just finished all the installments on that. The moment that I've already paid them in full, I was like, okay, I'm going to stop for now, I'm going to wait for a bit. And then once I've recovered, I'm going to be more smart. According to Payments Canada, 26% of all Canadians have used,

these kinds of plans to pay for their purchase. Angelica Carolina is a 41-year-old mom of three in Toronto. She says she's a frequent user of Buy Now Pay Later plans, says she gets most of the family's income through rent, it goes to rent and groceries. And there's not a lot left over at the end of those expenditures. And so she says that using Buy Now Pay Later has helped her and her husband afford extras

and higher quality items that last longer. I've used it in a lot of things, mostly for like back to school shopping, for my kids' Christmas gifts for family, for friends, that's something that is not within our budget. I would rather buy $100 snow shoes, like a branded one, like Columbia, for example, rather than the $30 Walmart shoes. So should we buy now and pay later?

Shannon Lee Simmons and Bruce Celery have been thinking a lot about that question. Shannon Lee Simmons is a certified financial planner, founder of the New School of Finance, and her latest book, It's called Making Bank Money Skills for Real Life. Bruce Sellery is the CEO of Credit Canada, non-profit credit counseling agency, and they are both with us in studio. Good morning. Good morning.

Shannon, you have heard some of the examples of why people are using this kind of payment system. Who is this for and what, as you understand it, in your own practice, what are people using it for? Yeah, I've seen this really climb up in the last few years. It's, and even in my own life, you see it on the apps more frequently when you're checking out to do something online.

I find that the people that are using it in two different ways in my experience. So I have people who are using it. I'd say the people in their 20s using it for things like clothes. I see it a lot for clothes. Seeing it for things like large purchases or electronics, this kind of thing. But I've also seen it within that demographic for things like Uber Eats, which is something that is a totally radical, in my opinion, way of using this buy now, pay later. But it's happening. Eat the burrito now, pay for it later.

Like, legit. And then I also, as people are getting older, because I work with. millennials and Gen X and even boomers. I see people using it across the whole span. But I have noticed that as, you know, people are, the older people that are using it are maybe using it in the same way that we would have used like a buy now pay later years ago. Remember like Leon's ho hold the payments, this kind of thing. So whether it's furniture, larger, like major expenses, and they use it less frequently. So it's very much more, I would say, strategic use of it for someone who's been older. Bruce, there are a number of options here. PayPal has just started offering it

In Canada, people will perhaps recognize the names of Karna or a firm. It sounds obvious. Buy now, pay later. How does it work? So basically, it started in the world of e-commerce. So you transact on the website and at the end, instead of saying your total is $1,000. I mean, it says that, but it also says you could pay in four equal payments, no interest. So a lot of people choose that.

It's from a behavioral finance standpoint. It makes that purchase feel so much cheaper. It's only $250. It's not $1,000. And how it works for the retailer is they pay a fee to the buy now pay later firm as a part of their marketing budget. And they do this for two reasons. First, it reduces the number of people who abandon their cart. So there are a lot of people in the e-commerce world who just decide not to push by at the end of it.

And also, it is a higher shopping basket. So they think about that fee of, say, 6% in the same way that they would think about another marketing fee like advertising on Google or whatever. So it makes sense to the merchant because they sell. more stuff. Can I go back to something you said earlier, which is no interest? Yeah. Is the purchaser ever charged interest? So there are instances in which they are charged interest. Hopefully that is clear to them on checkout and it's typically on much larger value things. They aren't charged interest for Uber Eats or for a, you know, a sweater at a fast fashion outlet. And that's one of the most compelling things because a lot of consumers are thinking, do I put this on my credit card,

which I cannot pay off in full and therefore I'm going to be paying 20 to 25 percent interest? Or do I do BNPL where I'm not going to be charged interest. The fundamental issue here from my perspective is we have to live within our means. And BNPL for those who aren't currently living in their means enables them to extend themselves even further. If I don't pay back the purchase within the 30 days, whatever, do I get dinged then? You do. There's a late fee. That's when there's a late fee. Yeah. And it can lead to more pronounced consequences eventually. Maybe they send that debt to a collections agency. Maybe it hits their credit score. But in general, BNPL's not reported to the credit bureaus. And this is problematic in and of itself, because that's like a safeguard. That's like a

valve. When you apply for lots and lots of credit, eventually the credit bureau is going to say to lenders, don't lend them any more money because this is a problem. And BNPL flies under the radar. I thought it was interesting. One of the people that we heard at the very beginning of this conversation, Shannon, talked about how it's addicting in some ways. Tell me more about how you think this shapes how we think about money in some ways. Because one of the things that Payments Canada has learned in its research is that, and you've hinted at this, Canadians are using it for home electronics, clothes, food, and groceries. I think, you know, if everything with money made sense, I wouldn't have a job. So I think we are emotional people when we make financial

decisions and what this allows, to Bruce's point, there's not as many consequences as I think the fear of credit card debt is. So if you ask the average person if credit cards are good, they're going to say, no, high interest and they're afraid of it. We all understand how it works. This is new, and it feels like you're flying under the radar. So what is addicting about it is that you can still get what you want now. So it feeds that part of us that are making that decisions. And it feels like the consequences are not as high as putting it on a credit card that you can't pay off. And I also think that we trick ourselves, because we're quite good at it, by seeing the lower price point.

makes us think, huh, well, that's not that bad, actually. And it feels like more motivating to say yes. And that's what I think is addictive, is that, you know, consumerism is my big problem is that we are being marketed to all the time. We're constantly feeling like we're not enough. We're broke. And then here's this thing that's saying, hey, this is interest free and you can actually afford this. Why wouldn't you do it? It's not things that you necessarily need. It's things that you want. Yeah. And when you are so much of your paycheck is going to towards housing and bills and your car payment and you never get to enjoy some of the hard-earned money that you have. And now you have an opportunity to say yes to something that makes you feel

like you're working and it's worth it. I think that's an addictive thing because it feels really good in the moment. What's the, just the last point on this. And you and I've talked about this before, the influence of something like social media on driving us to this. I blame social media for so much. I've been doing this for 20 years. I've been looking at people's money. every day for 20 years. And I can tell you, even before wedding Instagram hashtags, okay? I worked in this. I know before. I'm going way back. And I even, I even remember noticing then, wow, now there's a hashtag. And so the pictures are more important because now people want to do more wild things. So all that to say, not only do I think that social media is to

blame because we, you know, we see the highlight real. I think it's ratcheted up what we think is normal, like a financial dysmorphia. I don't think that we know. what normal life is anymore because we are constantly, which is human, comparing ourselves, also human, but instead of to the people in our block, the people in our town, the people at our work, we're doing it to people that we don't even know. We have no idea who they are, but they look like us, we think they're like us, but we don't know anything about their finances. And yet they're living this life where we are here and we feel like somehow we're missing out. This ascent isn't for everyone. You need great.

grit to climb this high this often. You've got to be an underdog that always overdelivers. You've got to be 6,500 hospital staff, 1,000 doctors, all doing so much with so little. You've got to be Scarborough. Defined by our uphill battle and always striving towards new heights. And you can help us keep climbing. Donate at lovescarbro.cairbo.ca. Is your home ready for the next big snowstorm?

You can take action to help protect your home from extreme weather. Discover prevention tips that can help you be climate ready at keep it intact.ca. And so buy now, pay later gives you a way to kind of get closer to that. I think that it allows you to feel like you are getting something for you with your money that you work hard for. And yet, Bruce, one of the things we heard from Angelica is that buy now, pay later, BNPL, allowed her to buy better quality boots, for example. So is there ever a good opportunity to use this? I think there are good opportunities. And this is something that I think anybody in the industry would say, you've got an aunt.

She has passed away. You need to get on a flight tomorrow. So you book the flight. You use BNPL to pay for it. And that is what you might call a need. So you do that and you go and that works. We're not seeing that behavior by and large. So at Credit Canada, we're a nonprofit.

We counsel 15,000 people a year. More and more we are seeing our clients are younger. and more and more they are showing up with BNPL on their list of debts. Because when we talk about that flight, it's not to go see the family at the aunt's funeral. It's because there's a, you know, a stag party or a, you know, cheap trip to Cuba or whatever those sorts of things are. It is extraordinarily difficult for Canadians to discern between what is a need and what is a want. And there's a third leg to this challenge for consumers. So the first is more and more to want.

The second is easy access to credit. And the third is the logistics to buy things. Like, we used to have to leave our house and walk to the store, go in a car. I don't even have to put pants on now. There's this place. It's called the store. You don't have to put plants on. Amazon's going to have that thing to you maybe before dinner time. And so those three things have almost completely removed the friction of spending money.

There's no friction anymore. Friction's really interesting because that's the thing that slows you down. 100%. And let's look at other categories. Let's look at our physical health and how we eat. There is no friction to food anymore. You don't have to prepare it. You just order it in.

A lot of us work from home. You don't have to get up and move around very often. So when we look at the connection between what's good for us and the context of our life, there's some real contradictions there. And it really looms large in the area of personal finance. I want to talk a little bit more about the consequences of this. But you, Shannon, you hinted to this in terms of the. the clientele that you work with. Do you see a generational difference in terms of how

Gen Z or millennials would think about spending money in this way compared to maybe us older ones? My Gen Xers and my boomers. I think that although that's not to say that my Gen X and boomers aren't using it, I would just say that they're more leery of it because it's just not necessarily something that's been in their Zygias for a long time. And whereas young people are like, this is a new app. I'm into it. This is a technology. I'm comfortable. to experiment where I'm at. And I also think that it has to do with cash flow. So my people who are younger just don't have as much cash flow necessarily. So there is a need to do something to get what you want, right? Constraints breed innovation. And so if you don't have as much

cash flow and you still want to do the things, you're much more likely to use something like that. So I do see a generational divide, but it's not necessarily a righteous one. So I don't see it like I'm not seeing my older clients say, oh, you shouldn't do that ever. It's just that there's not as much frequent need for it. And if it is being used, it's very strategic. So this could sound a little scolding, but there has been research into what this does to people's financial well-being. Ed DeHan is a professor at the Stanford University Graduate School of Business, studied the impact of Buy Now Pay Later on, as we say, people's financial well-being by looking at the banking records of 10,000 Americans. Have a listen to this.

We simply looked at what happens to these people before and after they start using Buy Now Pay Later for the first time. And we're particularly interested. in what we call early indicators of financial distress, non-sufficient fund charges on your bank account, or stop paying off credit card balances or paying increasingly large overdue fines on credit cards. We observed among users, there's an 8.9% increase in overdraft charges, a 2.5% increase in credit card interest, and an 8.4% increase in late fees. Now, for the average person, that leads to $176 a year in extra charges, which might not sound like a lot to some of your listeners, but for somebody who is already on the brink or teetering on the edge of financial distress, $176 actually is quite material. In the cross-section among the most vulnerable users, the least experienced users, it's up to $252 a year in extra charges.

So his research concluded that there is actually a causal connection between using buy, now, pay, later, and these signs of financial distress. It's not just a sign that somebody is already underwater, that this could actually exacerbate that in some ways. What's the worst case scenario, Bruce? Well, the worst case scenario is that the dish runs away with the spoon, and you've got an individual who simply can't keep up. They will initially, hopefully, call a nonprofit credit counselor,

and we've got solutions. We've got lots of ways that we can help them get back on track. What is probably more insidious is that people can still hold on and make ends meet. but the mental health toll of feeling like, you know, how do I plug all the holes and how do I make this work? And the consumerism then comes at the cost of the mortgage payment. As he was saying, the mental health toll, you were pointing your finger at him. Yeah, like, yeah, say it. This is a huge deal.

So Shannon and I have a very strong value about the connection between personal finance and a holistic view of life. And what we see at Credit Canada every single day of the year is people calling in deeply upset, feeling a tremendous amount of shame, concern that they're going to be judged. And I think where we need to start this conversation is there's no right or wrong or bad or good. There's no good debt and bad debt. There's high interest debt and low interest debt. And there are actions to take to support people to begin living within their means again. I want to talk about those actions. But one of the reasons, and again, we've hinted at this. One of the reasons why people end up in this situation is because the phone and the algorithm will lead you to a place where you believe that you have to do this.

This is part of living life in 2025. So we're in the middle of this big spending season. There's a thing on TikTok right now where people are posting videos about their holiday wish lists for the year. Have a listen to this mother and this daughter. My preteen is going to share with you her Christmas wish list.

First thing I need the most, a mini fridge. I need my doctor pepper. Next, an iPhone 17. I need this. Need it. I need Mary Jane's. Obviously. and then a hoverboard that you just begin your life i think it's going to be a good christmas i know

that feels like a very reasonable christmas list i know shannon you look distressed i was surprised that uh the preteen didn't have like a sephora face mask and like uh that's what i'm seeing some categories yeah it is it is like um this this speaks directly to what i think the fundamental problem is, is that what we think is normal has exponentially changed in the last 10 years. And we are normalizing it every day by watching videos like that. And even though some of us might listen to that in eye roll or, you know, be very upset about it, that doesn't mean that young people aren't watching that and thinking on some level, that's silly, that's not me, but then it gets in there, doesn't it? And you see it enough times and it normalizes.

Let me give you an optimistic take on culture. So we have really shifted. how we think about alcohol in the last five or ten years. And so I'm not a big drinker. I've never been a big drinker, university aside. And so for years saying, I don't want to have a drink, didn't go anywhere. People are like, come on, have some fun. Now it's very easy. I say, I don't drink. And no one says anything. They'll offer me a non-alcoholic beer. And so on debt, we need to get people to be willing and able to say, I can't afford it. So to that mom, maybe that family of that, you know, that clip that we just listened to, maybe they have all the money in the world.

And if they do, they should spend it and have the best time. But in families where they don't, we need parents to be armed to say to their kids, we can't afford that. That's just the reality that we are in. And there's such a concern about saying, we're going to disappoint our children. But those are the facts. That's reality. And we do need to face up to that.

And to your point, I mean, we're almost out of time. But you said there's no good. debt and bad debt. If people find themselves in a heap of trouble, where do they start? They start by calling a non-profit credit counselor. There's many of them across the country. Credit Canada serves the entire country. And it begins with a conversation with a counselor who can be warm and empathetic and holistic. We assert at Credit Canada the debt is not the problem. Dead is never the problem. Dead is the symptom. So if debt's the symptom, what's the problem? And for some people, it's compulsive shopping or gambling or just, you know, they just couldn't

quite keep on top of the NPL. And there's always, always, always, always something that they can do, always. Shannon, last word to you. What do you tell your clients? Again, if we assume, or if we've come to assume that debt is now part of life, what do you tell them? I talk a lot about what Bruce was just hinting out to this sort of setting boundaries and being okay to set them with other people and getting comfortable in your own skin to say, you know, this is not something that I'm prioritizing in my life right now. Instead of necessarily, you know, I can't afford it. People have a hard time saying that. But just this is not a priority for me right now in my plan. I have a plan. This isn't a part of it. And the more we like normalize how to say that, then maybe the less will feel

compel, like that we are compelled to spend. I also think everyone needs to take a big old social media break, mute every single person on there that makes you feel bad about your finances or like you're not enough if you say no. And then if you've got the debt, then I think it's up to you to assess sort of where you're at in that spectrum, right, and what you need to do about it. But it all starts with cash flow. Good to have you both here. Thank you very much. Thank you.

Shannon Lee Simmons, certified financial planner, founder of the New School of Finance. Her latest book is Making Bank Money Skills for Real Life. Bruce Celery is the CEO of Credit Canada, non-profit credit counseling agency. You've been listening to the current podcast. My name is Matt Galloway. Thanks for listening. I'll talk to you soon. For more CBC podcasts, go to cbc.ca slash podcasts.