Is spending money (wisely) the new way forward for financial literacy?
As we gear up to the festive season, it is not a surprise to hear that UK Consumers are loading up their shopping carts in celebration, with total spending rising to almost £110 billion in the last three months of 2023. However, with increased spending and the continued cost of living crisis, one thing is clear: UK consumers are still latching onto Buy Now, Pay Later (BNPL) as their method of choice to make ends meet this Christmas. From ASOS to Apple, this financial tool is now relatively commonplace as a payment option at online checkouts, offering consumers the option to pay for their total purchase in bite-sized interest-free instalments. In fact, with a 15.8% rise of BNPL services during Black Friday from last year, BNPL is set to rise by almost 9% during the holiday season to over £3.7billion.
BNPL and general consumer finance schemes may have a right place and a right time – for larger purchases like a car or deferring payments during bill-heavy months. However, there is a lack of consumer understanding on how BNPL can create significant consumer debt. Stories of consumers using BNPL for something like a takeaway (‘Eat now, pay later’ anyone?) suggest some have become reliant on delaying payments even for everyday goods. The issue is compounded by the fact that there are limited affordability checks against the user, and it becomes challenging for a user to see all of their payment deadlines in one place, leaving vulnerable customers facing late or missed payment fees which now impacts their credit scores. Tied into a cycle of impulse spending, the instant gratification of clicking ‘purchase’ without immediately impacting their bank balance leaves little time for consumers to evaluate whether they are spending beyond their means.
Cue Save Now, Buy Later (SNBL). This rival financial tool is gaining momentum and has contributed to the growing diversification of UK online payment methods. A counterpart to BNPL, the SNBL business model aims to prevent a reliance on staggered ‘pay later’ payments and instead encourages a consumer to save incrementally for a specific purchase in mind.
Although features vary between apps – from Monkee to Accrue Savings – customers are encouraged to save up for their purchases through different incentives and discounts; if savings goals are met, customers can choose to spend their money and in turn may be rewarded with bonuses like cashback. The organisational capabilities of digital wallets like HyperJar are second to none – spending categories can be divided up into a plethora of ‘jars’, enabling consumers to gain greater financial transparency by understanding where they might need to save more to stick to their budget. Users can also set rules to control their spending habits, for example adding an ‘only’ or ‘never’ feature for spending in some shops opposed to others.
Surely we are still spending? Yes. But spending money is not a ‘bad’ thing, nor can it be avoided entirely – the average British person will spend over £1.5 million in their lifetime. And saving up before spending is something consumers already do – many of us will put extra money aside in preparation for a holiday, a car, or the aforementioned festive purchases. The argument here is not to ‘stop spending’, it is about spending within your means and with purpose. For HyperJar, the stress is on ‘making your spending go further’. Indeed, SNBL seeks to build more responsible spending habits to enable your money to go that extra mile with discounted savings. Budgeting and fostering habits to save and then spend are foundational for financial literacy and a healthier approach to spending entirely.
‘Our core thesis is that spending money is the world’s largest asset class.’
– Robert Rooney, CEO of HyperJar
As well as helping to embed healthy savings habits, HyperJar also helps users to more easily access rewards and discounts that ‘give back’ so the consumer can get greater value on the money that they spend.
‘We allow you to access the ubiquitous discounts, rewards points, loyalty stamp collection, that are available out there, but about 80% of which go unmonetized by consumers, because of the friction during the process of actually accessing those at the right time at the till.’
– Robert Rooney, CEO of HyperJar
Save Now Buy Later stands as a significant ‘upgrade’ to the simple savings goals associated with PFM tools. A future where retailers can understand their customer preferences and predict their future ‘intent’ purchases could allow more personalised offers to surface. What we are already witnessing is the ability for apps like HyperJar to embed their technology into banks. Here, we could see banks tapping into and leveraging this data to foster greater customer engagement and retain customers, with personalised savings suggestions and products as another key outcome.
SNBL is undoubtedly a more financially responsible approach to spending and a valuable tool if consumers want to avoid heading into the New Year with debt. The Building Society Association’s Society Matters Magazine recently explored how Open Banking Technologies can help vulnerable communities evaluate their spending patterns and identify potential savings. Notably, SNBL could reassure customers that are vulnerable to the cost-of-living crisis by educating them on how to stretch out the finances they do have. By nurturing a greater understanding of how to save and spend their money in the most effective way, this is one step towards better financial health and security.
Naturally, challenges lie ahead for SNBL. Consumers are regularly bombarded with media that encourages spending and frivolity, across many different channels, and embedded user journeys have made it much easier to do so – it now only takes a few clicks from watching a video on TikTok to making a purchase. Secondly, SNBL tools need to find a way to be as available to the consumer as BNPL is – which is no easy task. Finally, driving behaviour change is a notoriously difficult thing to do, particularly when it delays rather than accelerates gratification.
What is clear though, is that BNPL has the potential to drive negative financial behaviours and to leave consumers in significant financial difficulty. SNBL, on the other hand, represents a different way of thinking about spending that can improve the financial health of consumers and help their money to go further. The question is, when the holiday season rolls around next year, will consumers have fundamentally changed the way they spend and adopted the Save Now Buy Later approach?
