Budgeting Archives - Credit Connection

Buy now, pay later (BNPL) services have become increasingly popular in Australia in recent years.

There are now over 6 million users of these services, and the number is growing rapidly.

However, there are concerns that these schemes may not be adequately regulated, and that borrowers may not be fully protected from the risks associated with taking out a loan.

Here are three reasons why the government is right to be wary of buy now, pay later services:

1. Inferior Consumer Protections

When compared to other credit products, BNPL schemes offer inferior consumer protections. For example, many schemes do not require a credit check before approving a loan, which could lead to borrowers taking on more debt than they can afford to repay. Additionally, many schemes do not have clear guidelines about late fees or other penalties, which could leave borrowers with unexpected costs.

2. Potential for Harmful Debt spirals

The Australian Securities and Investments Commission recently reported that one in four BNPL users have missed a payment in the last 12 months. This is concerning because late payments can trigger a debt spiral, where the borrower takes on more debt to cover the cost of the original loan plus interest and fees. This can quickly become unmanageable, leading to financial hardship.

3. Lack of Regulation

Unlike other credit products, BNPL schemes are not currently regulated by the Australian Securities and Investments Commission (ASIC). This means that there are no guidelines in place to protect consumers from harmful practices. ASIC has expressed concerns about this lack of regulation and has called for greater scrutiny of these schemes.

With more and more Australians falling into debt, the government is taking a closer look at BNPL schemes.

The Regulating Buy Now, Pay Later in Australia consultation paper highlights a number of potential risks associated with the use of BNPL services which the Treasury is seeking feedback on.
If you are considering using a BNPL service, it is important that you are aware of these risks so that you can make an informed decision about whether the service is right for you.

Some of the risks associated with buy now, pay later schemes include:

They can tempt you to overspend: When you know that you don’t have to pay for something immediately, it’s easy to convince yourself that you can afford it. This can lead to impulse purchases that you may not be able to afford when the bill comes due. This can leave you with financial stress and debt that is difficult to repay.

You may end up paying more in fees: Many BNPL schemes come with high missed-payment fees. This means that if you’re not able to pay off your purchase in full when the bill comes due, you could end up paying significantly more than the original purchase price. This could leave you in a cycle of debt if you cannot afford to make the minimum repayments on your account. In addition, missed payments may be recorded on your credit report which could damage your credit score.

They can damage your credit score: If you miss a payment or make a late payment on BNPL scheme, it will likely show up on your credit report. Additionally, opening multiple BNPL accounts can also have a negative impact on your credit score as it may appear that you are relying too heavily on debt to finance your purchases. This can damage your credit score and make it more difficult to borrow money in the future.

You may be tempted to use them for larger purchases: While BNPL schemes are often advertised as being ideal for small purchases, you may be tempted to use them for larger items. This can put you in a difficult financial situation if you’re not able to make the payments when they’re due.

You may have difficulty cancelling the service: Once you’ve signed up for a BNPL scheme, you may find it difficult to cancel the service. This could result in additional fees or charges being applied to your account.

What’s next for Buy Now, Pay Later services if they’re held to a higher standard?

The government’s announcement of a review into the BNPL industry is likely to result in greater regulation of these services. This could mean that fees and charges are capped or that stricter eligibility criteria are put in place for borrowers.

Increasing regulations could lead to higher fees for consumers.
If the government increase regulation on BNPL services, one likely outcome is that fees for consumers will go up. This is because BNPL providers will need to find ways to offset the costs of complying with new regulations. For example, if regulators impose a cap on late fees, BNPL providers may try to make up for it by raising annual fees. This would make BNPL less attractive for consumers, who are already facing high levels of debt and financial stress.

BNPL providers may need to change their business models to stay afloat.
Another result of increased regulation could be that BNPL providers will need to change their business models in order to stay afloat. This could mean introducing new fees, such as an annual fee or service charge, or changing the way interest is calculated on outstanding balances. It could also mean partnering with banks or other financial institutions in order to access cheaper funding sources. Whatever changes they make, it’s likely that they will be passed on to consumers in the form of higher prices.

Some BNPL providers may exit the market altogether.
Finally, it’s possible that some BNPL providers will exit the market altogether if regulations become too onerous. This would reduce competition and leave fewer options for consumers who are looking for alternative financing products. It’s also possible that we will see consolidation in the industry, with larger players acquiring smaller ones in order to survive.

Battling BNPL Debt? Here Are some Tips to Help You Get Back on Track

If you’re like many Australians, you may have taken advantage of BNPL services to help you manage your finances. While these services can be helpful in the short term, they can also become a problem if you’re not careful. If you’re struggling with BNPL debt, there are several things you can do to get back on track.

Understand Your Options: One of the first things you need to do if you’re struggling with BNPL debt is to understand your options. Do you have enough money in your savings account to pay off the debt in full? If not, could you afford to make larger monthly repayments in order to pay off the debt sooner? Would consolidating your debt into a personal loan with a lower interest rate help you save money in the long run? There’s no one-size-fits-all solution when it comes to dealing with debt, so it’s important to understand all of your options before making a decision.

Talk to your BNPL provider: Your first step should be to reach out to your BNPL provider and explain your situation. Many providers are willing to work with customers who are struggling to make their payments. They may be able to offer you a hardship payment plan or another type of assistance.

Create a Budget: If you’re struggling to make ends meet, it’s time to create a budget. Start by tracking all of your income and expenses for one month. This will give you a good idea of where your money is going and where you could potentially cut back. Once you’ve created your budget, stick to it as closely as possible. This may require making some lifestyle changes, but it will be worth it in the long run.

Prioritise your debts: Once you’ve created a budget, you can start prioritising your debts. Make sure you keep up with any essential bills, such as rent or mortgage payments, and put any extra money towards paying off your BNPL debt.

Seek professional help: If you’re feeling overwhelmed by debt, it may be time to seek professional help from a financial counsellor or planner. They can provide guidance and support as you work towards getting back on track financially.

The future of Buy Now, Pay Later services in Australia is uncertain, but one thing is clear: if the government increases regulation on these services, it’s going to have an impact on both providers and consumers alike.
Higher fees, changes to business models, and even exit from the market altogether are all possible outcomes of increased regulation.

So what does this mean for you?

If you’re thinking about using a BNPL service, it’s important to do your research and compare different providers before you commit to anything – because the landscape is likely to change in the coming months and years ahead.

We live in a world where money is becoming increasingly important.

As interest rates and inflation continue to rise, and the most common products and services we purchase become more expensive, it’s more important than ever for children to understand how to manage money.

Whether you have children of your own, grandchildren, or (adopted) nieces and nephews, or plan to have children at some point in the future, you can play an important role in educating them financially as another way to pass on your financial development.

It’s never too early to start learning about personal finances.

Money is a fundamental part of our lives and the earlier we start learning about it, the better equipped we’ll be to make sound financial decisions later on in life.

These skills are essential not just for managing finances, but for everyday life. By teaching kids how to budget and make responsible decisions with their money, parents can set them up for success both financially and personally.

That’s why it’s so important for parents to teach their children about financial literacy early on.

What does it mean to be financially literate?

Financial literacy is the ability to understand and use financial concepts in order to make sound decisions. This includes understanding things like credit, budgeting, investing, and saving.

It’s important for parents to be financially literate so that they can teach their children how to manage money wisely.

Why Is Financial Literacy Important?

There are a number of reasons why financial literacy is so important, for parents and children.

Financial literacy helps children develop important life skills such as goal-setting and decision-making. 2. Children who understand that money doesn’t grow on trees are more likely to save their pocket money and think twice before spending it.

Financial literacy has been shown to boost academic performance. A recent study found that students who received financial education had higher grades in maths and were more likely than their peers to enrol in University.

How Can Parents Teach Their Children about Financial Literacy?

There are a number of ways that parents can teach their children about financial literacy. One way is to set up a pretend bank account for them where they can deposit allowance money each week. Another way is to help them save up for something they really want by matching each dollar they save.

Parents can also teach their children about budgeting by giving them an allowance that they have to use to pay for things like snacks, entertainment, and clothes.

Whatever method parents choose, the most important thing is to be patient and keep the lines of communication open so that children feel comfortable asking questions and learning more about money.

Teach your children about financial literacy by setting an example

One of the best ways parents can teach their children about finances is to lead by example.

Show your child how you save money, how you make wise spending decisions, and how you manage your debts. You can also teach your child about budgeting by giving them an allowance and helping them track their spending. There are also a number of great financial literacy resources available online.

The most important thing is to be patient and keep the lines of communication open so that children feel comfortable asking questions and learning more about money.

Parents play a vital role in teaching their children about financial literacy. By starting early, making it fun, and letting them make mistakes, parents can set their kids up for success both financially and personally.

Financial literacy is an important life skill that will benefit your child in many ways, so don’t hesitate to start teaching them about money today!

“Money without financial intelligence is money soon gone” Robert. Kiyosaki

People tend to focus on their short-term problems. It’s easy to get stuck on pause with so much happening in the world, but moving forward with a set financial strategy and taking control of your finances now, will have you thanking yourself later.

How many stories have you heard of lottery winners earning millions, but then losing it all in 5 years… or professional athletes who were making millions, who then ended up working at a car wash. All because they didn’t budget their money and plan for their long-term positions.

Budgeting is a simple process, in which a plan is created as to what you spend your money on. However, this simple process seems to get twisted in most people’s minds when more money comes into play. This is where ‘lifestyle creep’ falls into play.

‘Lifestyle creep’ occurs when an individual’s standard of living improves as their discretionary income rises, and former luxuries become new necessities. Just got a pay rise? Cool, buy the new shoes or gadgets. Your year-end bonus arrives, that’s a new car. Get promoted, that’s a bigger house.

Goal 1 – Talk to a Financial Adviser

Life is already complicated; don’t let financial stress and varying financial resources/priorities add to the complication. 28% of Australians surveyed said it affects their health, 23% relationships at home, 22% productivity at work, and for 12% of Australians, it affected their ability to attend work.^[1]

According to CoreData Principal Economic Researcher, Andrew Inwood:

“Good advice does of course make you wealthier at retirement, but it also adds value all the way through your life in the choices you can afford to make about schooling, insurance, holidays, housing and personal interests”.

Despite this… Anne Fuchs, Head of Advice and Retail Distribution for Sunsuper, says nearly nine million Australians have unmet financial advice needs.

Engaging a Brisbane local as a financial adviser, with expert knowledge in Property Investment, Property Management, Superannuation, Accounting and lending, will not only improve your financial health but can also help you improve your physical and mental health.

Core Data surveyed 1000 Australians as part of the research project finding that 80% felt more confident making financial decisions as a result of receiving financial advice.

The same percentage believe that advice has brought them more peace of mind; with 75% stating that financial advice is worth more than it costs.

Goal 2 – Smash Your Debt

Getting out of debt is an important step to taking control of your financial interests.

By focusing attention on reducing debt, you can reduce the amount of your salary that is used on the accrued interest. Being debt-free is also a very liberating concept; having more freedom to do the things that you want to do, and allocate your finances in more productive ways. Becoming totally debt-free may be a while down the road for some people, but making sacrifices today to make it possible is worth the effort. Make it SMART:

Setting yourself a debt repayment schedule or automatic payments will help you keep your goals measurable and attainable
Go through any old or unused items and see if there is anything you could sell
Reduce spending on non-compulsory items
Get a temporary second job
Utilise sites like Fiverr or Airtasker to supplement your income to make extra repayments

Goal 3 – Boost Your Savings

Saving is a critical component of financial success. You should be aiming to save at least ten per cent of your income each month. You’ll be surprised how quickly that money grows. Snowball effect, eat your heart out!

Establishing healthy and routine saving habits now will prepare you for retirement in more ways than one. If you find it hard to save, your financial adviser can help you evaluate your current spending habits and identify areas that could be cut back.

Saving is easier when you’re aiming for something specific. Think about your goals and integrate them with your savings. The goal of saving is to make it a habit, make it SMART:

Commit to ‘no spend’ days – focus on free local activities
Stop eating out or less frequently
Reduce your grocery bill – plan your meals in advance and REDUCE WASTE
Contact your utility providers and seek a better deal or look at competitors

Don’t let financial stress put a dampener on your progress. It’s never too late to plan ahead and set yourself some financial goals that will keep you in good stead.