A platform focussed on financial wellness can only do so much in promoting the positive and helpful ways we can improve our financial wellbeing. Understanding how you think and feel about money, following a clear strategy and plan instead of wandering from month to month and working to a budget are all key foundations for a stable financial platform. You must, however, be aware of the outside influences targeting you to knock you off plan: credit advertisements.
The aggression of the credit / debt / finance industry is widely-known. Credit is the most heavily marketed product in the world. It targets those on lower incomes to spend more than they have, convincing them of things they need, trapping them in a never-ending cycle of impulsive-buying, debt repayments and financial stress and hardship.
The latest brand on the credit scene in the UK taking Instagram by storm is Klarna. Klarna is a Buy Now Pay Later credit app, allowing you to buy something with their credit and finance it, pay later or spread the cost across three payments with "No interest. No fees. Ever",
Well, that's not quite true, and it isn't just the interest you should be concerned about. With Brands and individual Instagram Influencers promoting Klarna, it is becoming more socially acceptable to use buy now pay later - with no transparency if the slippery slope it can lead to.
Klarna encourages you to spend money you don't have.
Where Klarna claim it helps for a "smooth" transaction, it means frictionless, which makes it easier for you to give people your money.
Even for those that have the money but want to take advantage of interest free periods, the risk of a debt trap intensifies if you forget to return items, forget to pay or you run out of money by the time your final payment is due.
Klarna's main revenue stream doesn't come from fees (although it does generate revenue this way, despite over-promoting its no fee model); it comes from transaction fees/commissions from retailers - but let's also unpick that for a second.
A brand such as ASOS or H&M, for example, know that they need Klarna to make you part with more cash, so they are willing to give away some of the margin (profit) on their sales to Klarna to entice you to buy something that otherwise you were extremely unlikely to buy anyway.
You are statistically likely to spend more using Klarna and other credit services
The business model relies on people spending more than they would have done otherwise - with reports of between 24% and 55% uplift on shopping basket spend when paying with Klarna. Whatever the accurate figure - it is widely accepted people spend more when buying with credit - it feels like "free money".
The brand targets millennial and younger users - with students being a prime target. With its trendy branding, chosen retailer partners and its massive push into influencer-marketing - Klarna is targeting young people to use credit to shop.
There is literally no benefit whatsoever to you financially by using its service.
With forward planning and a budget that has breathing space and isn't too restrictive - there is no need for a service like this. Simply shop within your means and use a debit card - what is so hard about that?
Their Mindful Money campaign directly contradicts their product - which relies on people NOT being mindful
Being mindful with money is about having strong financial foundations, spending less than you make and making intentional financial purchases. It is not about splitting the payment for a pair of shoes into 3, or deferring payment until after payday (*remind you of a little concept called payday loans?). Buy the shoes - but just budget and save up for them, if you really want them. This is not an anti-consumption message - its an anti-debt message.
The rapid growth of Klarna means that it is an uphill battle to encourage people to ditch debt from their lives and, focus on financial wellness and later build wealth. According to Klarna, more than 100,000 new customers are being added weekly in the UK, and last year globally, it handed out more than £30billion in loans and for a promoter of its no interest no fees, it made £2.4billion revenue in 2019 from interest.
We are all influencers when speaking on a social platform and so I appeal to those that have more "influence" than others - please do not promote Klarna as a suitable payment method for buying things. Instead, promote responsible budgeting and intentional spending on things that we genuinely want.