In today's culture, there is a huge rise in consumer debt, as people are given the ability to buy things they cannot afford. In 2022, credit card companies charged borrowers over $105 billion in interest and $25 billion in fees. Data from 2022 also revealed that those who did not make payments on time and had a revolving balance paid more interest and fees than they earned in rewards. One 2023 study found that, at the time, 89 percent of Americans with revolving credit card debt were trying to pay it off within the next year, but 50 percent reported feeling as though they might not because of the rising costs of goods. Instead of saving money and buying everyday consumer items with cash, many are buying items on credit. It is one thing to finance larger purchases, but when someone buys a $200 pair of shoes by making four $50 payments, we might have a problem at hand.

The requirements for using BNPL are very low. Typically, there is no minimum credit score, and all you need is a cell phone number and proof that you are over the age of eighteen. In 2024, fifteen percent of Americans used BNPL—an increase from 14 percent in 2023, and 12 percent in 2022. Additionally, 24 percent of Americans who have used BNPL have made a late payment, and nearly 40 percent of Americans regret using BNPL when they realize the total costs. Further, a study from last year that observed the spending patterns of 275,000 consumers at a major American online retailer reported that people were 9 percent more likely to make purchases when choosing a BNPL option, and those who used BNPL spent more money and left the website with purchases totaling 10 percent more, on average. These statistics clearly show that consumers are experiencing negative consequences from their use of BNPL.

The Things Unseen

Would such a state of affairs exist in a society with sound money and interest rates based on consumers' time preference? Roger Garrison's Austrian business cycle theory framework shows a wedge that develops between saving and investment in the loanable funds market when there is an artificial credit expansion. The lower interest rate due to the credit expansion leads individuals to save even less than they otherwise would.