INSIGHTS WITH EVALESCO
The traditional festive holiday season is likely to be a little different this year, but one thing is likely to remain the same – the temptation to spend and the post-Christmas budget hangover.
Last year Australians spent about $1000 each for Christmas on presents, decorations, travel and charity donations. For 28 per cent of us, this expenditure meant using credit cards or buy now pay later (BNPL). (i)
While many will use credit again this festive season, the current economic circumstances may make us think twice about our spending. It’s not just what you spend, but how you spend that could make all the difference.
So, if you plan to use credit to help manage your Christmas spending, what are the options?
Buy now, pay more later?
Even before COVID, more and more people were turning away from the traditional credit card and opting instead for a buy now, pay later payment method. BNPL providers in Australia include companies such as Afterpay and Zip, but there are many more.
The use of BNPL may be due to convenience or an aversion to debt, or a bit of both.
In a recent report, the Australian Securities and Investments Commission (ASIC) found BNPL transactions jumped by 90 per cent to 32 million in the 2018-19 financial year. (ii)
Meanwhile, the number of credit card accounts fell 7 per cent in the 12 months to March 2020 from 14.6 million to 13.6 million. (iii)
But for those who still use a credit card, it is estimated that more than 2 million Australians have gone over their limit since March this year as the economic slowdown takes its toll on household finances. (iv)
Initially BNPL was popular with millennials, but over time more baby boomers and Gen X have opted for this form of credit which boasts that it is interest free. Compare that with interest on credit card balances which are mostly in double digits and can even be as high as 20 per cent.
But don’t be fooled.
Watch for fees
There may be no interest rates on buy now pay later, but there are fees and these can quickly add up.
All BNPL providers have slightly different terms and conditions, but fees may include:
- Late fees of up to $15 a month
- Monthly account keeping fees of up to $8 a month
- Payment processing fee of $2.95 every time you make an extra payment
- Establishment fees can range from zero to $90. (v)
Of course, that does not mean you should avoid buy now, pay later offerings. If you meet all your payments on time, then it can be a useful form of credit. The key is to be cautious.
For instance, do not run up debt with multiple providers. Not only can that prove expensive, but it can also be difficult to manage. It can soon become expensive if you have late payment fees to pay to several providers.
ASIC research found one in five BNPL users missed payments in the 2018-19 financial year. This translated into fee revenue of $43 million for providers, a jump of 38 per cent over the year and financial hardship for 21 per cent of users. As a result, ASIC said some people were cutting back on meals and other essentials or taking out additional loans to make BNPL payments on time.
Now the big banks are meeting the challenge of BNPL to traditional credit cards head-on, with the launch of interest-free credit cards and partnerships with BNPL providers.
While the new interest free credit cards have no interest charges or late fees, they typically have a minimum monthly payment and a monthly fee in months where you don’t make a transaction.
Finding money for everyday items, let alone festive spending, has become a juggle for many this year. The gradual transitioning away from support payments such as Job Keeper and Job Seeker won’t make things any easier.
Whatever your financial circumstances, if you monitor your money carefully and make changes to your expectations, then there is no reason why this festive season can’t be just as good this year as last. One of the lasting benefits of 2020 may well be that it makes us more proactive about managing our money wisely.
SHARE OUR INSIGHTS
Share on Facebook
Share on Email
Share on Linkedin
Sign up to get the latest insights with our newsletter delivered straight to your inbox
We believe the true value of financial advice isn’t found in dollars and cents (although this is important too!) but in the peace of mind a financial plan can provide. It’s knowing where you want to go and how to get there, with a dedicated team behind you every step of the way.
We know the impact of good holistic financial advice can make and we have the life experience, technical capability and quality support team that can make that difference for you. We’ve empowered over 1000 families through the delivery of great financial advice, to be healthy, wealthy and happy.
The amount of super you’ll need when you retire depends on your big costs in retirement and the lifestyle you want. The Associate of Superannuation Funds of Australia (ASFA) estimates for a single $44,224 a year and for couples $62,562 a year is how much you may need. This is only an indicator and our advisers assess everyone’s individual circumstances.
The fees we charge for financial advice is only a fraction of the value we derive for our clients, meaning our clients are always better off after seeing us. Rarely do we encounter a new client invested appropriately for their needs, with adequate risk protection, structuring and estate planning provisions in place. Even small tweaks to a financial plan over a long period of time can result in drastically better outcomes for our clients which eclipses the fees of the financial advice. Additionally, you can opt-out of an ongoing fee arrangement at any time.
In our discovery meeting with you our advisers discuss the initial advice fee and the ongoing fees associated with our services.
After our initial phone call to discuss why you are seeking a financial adviser, we arrange a discovery meeting that outlines what is important to you, your current position, our areas of advice, our approach. We then present a Statement of Advice (SoA) to discuss your goals and our recommendations and go through the steps of how to proceed to the implementation stage. After signing the SoA, we discuss your questions, get you to sign the authority to proceed and complete any application forms before implementing the recommendations detailed in the SoA.
One thing to consider is the interest rate on your home loan in comparison to the rate of return on your super fund. Before making a decision, it’s also important to weigh up your stage in life, particularly your age and your appetite for risk. Whatever strategy you choose you’ll need to regularly review your options if you’re making regular voluntary super contributions or extra mortgage repayments. As bank interest rates move and markets fluctuate, the strategy you choose today may be different from the one that is right for you in the future
The information provided on and made available through this website does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you obtain your own independent professional advice before making any decision in relation to your particular requirements or circumstances. Evalesco Financial Services do not warrant the accuracy, completeness or currency of the information provided on and made available through this website. Past performance of any product discussed on this website is not indicative of future performance. Copyright © 2019 Evalesco Financial Services. All rights reserved