--:-- [Theme music fades out]
--:-- Noel King: Welcome to Today Explained. I'm Noel King.
--:-- Noel King: There is one company that 90 percent of U.S. lenders check with before they decide whether to give you a loan for a house or for a car. It's a credit rating agency called FICO. Now, this week, FICO announced that when it calculates your credit score, it's going to include for the first time ever your buy now, pay later purchases.
--:-- Noel King: Buy now, pay later companies are everywhere. Klarna just partnered with DoorDash. You can put a burrito on payments. And if that seems unwise, well, Klarna's CEO told CNN, yes, he in fact agrees. Like, why even offer that option? Yes, and that is unwise. I would not recommend anyone to put a burrito on Buy Now Pay Later, for clarity.
--:-- Noel King: Coming up on Today Explained, is burrito now pay later a great deal or just another debt trap? How much is that burrito in the window? With Barna it comes home with me How much? Support for this show comes from ServiceNow. AI is only as powerful as the platform it's built into, don't you know? That's why it's no surprise that more than 85% of the Fortune 500 use the ServiceNow AI platform.
--:-- Noel King: Didn't know that. While other platforms duct tape tools together, ServiceNow seamlessly unifies people, data, workflows, and AI, connecting every corner of your business. And with AI agents working together autonomously, anyone in any department can focus on the work that matters most. I've never met an AI agent. Learn how ServiceNow puts AI to work for people at ServiceNow.com.
--:-- Noel King: Support for this show comes from Macy's. Layering is an art form. All it takes is a bit of intention, style, and, of course, the perfect cold weather staples. So find the perfect look for you with the help of Macy's Fall Fashion Guide, your one-stop shop for fall's latest trends and must-haves. Curated by their experts. From leather to denim to cozy knits, find everything you need to piece together your new fall look. Explore the Macy's Fall Guide for yourself and shop in-store or online at Macy's.com.
--:-- Noel King: Okay, let's see here. Today. Today. Explained. Explained. I'm Akilah Kino, and I'm a journalist at the Financial Times, British newspaper, and I'm now based in the U.S. covering consumer finance.
--:-- Akilah Kino: One aspect of consumer finance that you've been covering recently is buy now, pay later services. What are those and how do they work? So buy now, pay later or BNPL is basically a type of lending that's provided by companies that call themselves fintech, so financial technology. But what they really are is just they're lenders who allow shoppers and consumers to split their purchases into installments.
--:-- Akilah Kino: And largely, these installments are interest-free, so you don't pay an interest rate on them. Wait, if they're not charging interest, how do they make money? Right, so it's not entirely transparent, and each of them has a different sort of breakdown of how they make money. But essentially, they take a fee from the merchants.
--:-- Akilah Kino: Merchants love BNPL because it gets people to buy more stuff. You need to book a flight. Today, the prices is perfect. But you just paid all your bills and it's not really a good time financially. I have some options for you.
--:-- Akilah Kino: I have spent $32,196.23 on a firm in Klarna since 2022. And the big question is, what did I purchase? You know how much better I felt about myself financially knowing that I was paying $43 today as opposed to paying $170 today? My shelves are full of makeup. I can't really mentally justify buying more makeup. But I mean, hey, it's only $43.
--:-- Akilah Kino: And some of them also make money from late repayment fees, which they call all sorts of funny names like snooze fees or reminder fees. But yeah, they're basically penalties that they take from consumers who don't pay on time. 2025 was my year of not buying crap online. I'm taking it very seriously. I've been pretty good. But on occasion, I have seen the option to pay with Klarna. But I actually can't remember where, maybe Sephora.
--:-- Akilah Kino: What kinds of stuff can you buy with BNPL? Well, so that's the thing. Pretty much now anything, or at least a wide range of items. So, you know, people have always, or for a long time, been able to paint installments for big purchases, like a sofa. A couch, yeah. A couch, exactly.
--:-- Akilah Kino: But now it's kind of spread to makeup, fast fashion, online clothing, that's a big one, and even DoorDash. Like, are we not going to discuss the news headline that all of a sudden DoorDash and Klarna are going to allow you to pay for fast food in installments? So now you can get your expensive DoorDash sent right to your front porch, cold, mushy, DoorDash person. I'm probably farted on it, but now it's on a payment plan.
--:-- Akilah Kino: Bad decision after bad decision after bad damn decision. Akilah, let's say I buy the burrito and then I decide I'm going to default on it. I'm not going to pay the $15 back. What happens? So if you can't repay on time and you can't sort of honor the repayment plan that you've agreed to with one of the providers, often they'll charge late repayment fees.
--:-- Akilah Kino: And so if you keep doing that, it's likely they won't approve you for more loans with them. And then another kind of contentious area of this whole debate is that for a long time, defaults on buy no pay later plans were not reported to credit bureaus. And so they wouldn't affect credit scoring, which had a lot of consequences.
--:-- Akilah Kino: One of them being that people could stack up loans from different providers with each of the providers not knowing that the person would already have BNPL loans with others. But that's actually changing. So the sector has come under pressure from consumer protection groups. And there's also been a rise in defaults recently, as people fear, you know, that the risks of a U.S. recession are becoming higher.
--:-- Akilah Kino: So now, actually, last week, one of the largest providers of credit scoring in the U.S. has announced that it will take into account BNPL by No Pay Later. My first impulse when I saw Klarna was, nobody's going to do this, but I clearly was wrong.
--:-- Akilah Kino: How popular is this? So it increasingly popular It rising really fast particularly with young people initially but it also spreading beyond that demographic And it so popular because it so easy So you know that the kind of fintech element. These companies have been really good at creating like a very seamless payment flow online.
--:-- Akilah Kino: So if you're shopping, you don't even have to really plan for it or think about it ahead of time, you'll just see a button to click on and then very easily you can get that loan. And it's also popular because people want to buy a lot of stuff. Like, you know, we were all targeted with these ads online and we all know about the rise of influencers.
--:-- Akilah Kino: Today, we're finally doing my bedroom makeover on a budget with the help of Klarna. You don't have to have all of the fancy new things to run. But if you're looking to invest in something for your running journey, Klarna is a great tool. Y'all, don't sleep on Farrah. I just bought some new kitchen appliances and I've been obsessed.
--:-- Akilah Kino: What's the weirdest thing that you've seen? The most probably concerning from a consumer protection perspective and from a financial stability sort of perspective is groceries. So, you know, if people start to pay, which they are, but like, you know, paying for food and very essential items with loans, I think is pretty wild.
--:-- Akilah Kino: Yeah, buying groceries on payments is uncomfortable to think about. So are these services more popular with people who are low income and really need them to spread the payment out? So we don't have a ton of data. So it's difficult to say for certain what the breakdown is in terms of the users.
--:-- Akilah Kino: However, we do know that, you know, people who can get approved for these loans might not get approved for other loans or credit cards. So there is an understanding among economists and analysts that it's more subprime population than other consumer lending areas.
--:-- Akilah Kino: And so what this means is that the people who are using these services to buy groceries are probably higher risk customers. And so if the economy turns, there is a higher risk of default from that population.
--:-- Akilah Kino: One of the things that people are watching at the moment is unemployment, the unemployment rate. So at the moment, employment still remains strong, but, you know, that could change and that could sort of create problems for those consumers.
--:-- Akilah Kino: Americans tend to accept debt with few reservations, even in a lot of cases if we can't pay it back. And there are probably a million reasons for this. But if someone says, I'm going to give you a $30,000 credit limit, we're like, yes, I'm going to spend $30,001.
--:-- Akilah Kino: So buy now, pay later is not shockingly new. We've always had, you know, layaway at the furniture store. But Klarna and these other payment systems are everywhere now and they're easy.
--:-- Akilah Kino: Do you think this is going to lead to people racking up more debt just because they can? So I think there's a really interesting tension where these products have the possibility of offering flexibility and be another financial tool in people's lives. Specifically people who don't easily have access to credit or funding.
--:-- Akilah Kino: And so that has the potential of being great. It also has the potential of spiraling into a potentially unsustainable financial situation for these people. And I think that often we look to regulation to kind of find that right balance between consumer protection and financial freedom and kind of managing the incentive that these companies have to grow their businesses versus, you know, protecting the economy.
--:-- Akilah Kino: One of the big concerns with this at the moment is that this industry is so new that it's not regulated as credit in the U.S. So credit cards are strictly regulated. Mortgages, the mortgage market is strictly regulated. And there was a push to regulate buy now, pay later, as credit, the same way credit cards are regulated in the U.S.
--:-- Akilah Kino: That's been stripped away because of leadership changes in the CFPB, the Consumer Financial Protection Bureau, installed by the new administration. So perhaps that's the kind of missing piece in the puzzle that makes it a potentially more dangerous tool, or it might not fulfill its potential as it would if there was proportionate adequate regulation.
--:-- Akilah Kino: You basically want it to be a system where it can be used as a tool, but the people who use it as a tool understand the risks that it comes with and the consequences it can have on their financial lives.
--:-- Noel King: Akilah Kino of the Financial Times. Coming up, no judgment, but are we addicted to debt? Support for today's show comes from adio what is adio adio is an AI native customer relationship management system built specifically for the next era of companies.
--:-- Noel King: They say it's extremely powerful, adapts to your unique data structures and scales with any business model. According to Adio, Adio takes less than a minute to set up, and within seconds you will have your email and calendars synced. You'll see all your relationships in a fully-fledged platform, they say, all enriched with that actionable data.
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--:-- Noel King: You can go to adio.com slash todayexplained to get 15% off your first year. That's A-T-T-I-O dot com slash todayexplained. Let's be honest. Are you happy with your job? Like, really happy? The unfortunate fact is that a huge number of people can't say yes to that.
--:-- Noel King: Far too many of us are stuck in a job we've outgrown, or one we never wanted in the first place. But still, we stick it out. And we give reasons like, what if the next move is even worse I already put years into this place and maybe the most common one everyone kind of miserable at work.
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--:-- Noel King: Support for the show today comes from Life Kit, the podcast from NPR. What's in your life kit? I'm asking. They didn't ask that. Every day you have to make choices that might shape the direction of your life, but you can't flip to the back of the book to find an answer key.
--:-- Noel King: Instead, you can listen to the Life Kit podcast from NPR. Life Kit offers real stories about common issues like relationships, finances, parenting, and your career. If you're looking to move with more intention or just need thoughtful guidance on living better, Life Kit delivers strategies to help you make meaningful, sustainable change.
--:-- Noel King: From fitness routines to mental resilience, navigating personal goals to tackling burnout, each episode is full of relevant insights and clear takeaways about things we all could use a little help with. LifeKit wants to help you approach your own life with confidence and clarity and walk away with a game plan you can implement right away.
--:-- Noel King: Enough from me. Go listen to the show, LifeKit. It's a podcast from NPR. This is Today Explained. So I am Kyla Scanlon. I'm an author and an economic content creator.
--:-- Kyla Scanlon: So my first book, In This Economy, came out last year, and I make videos across social media, have written for the New York Times opinion section, Bloomberg opinion. And my main goal is to help people understand the economy so they can make better decisions about their life.
--:-- Kyla Scanlon: You and I have never met. You do not know anything about me, but I do not like buy now, pay later. You tell me why that is. Why you don't like it? Why am I so suspicious of buy now, pay later?
--:-- Kyla Scanlon: I think a lot of people are suspicious. When Clarina teamed up with DoorDash, I made a video about it because I was freaked out. This gets into something that I've written a little bit about too, the convenience contradiction, where we're optimizing for this effortlessness.
--:-- Kyla Scanlon: When everything's like really easy, the less resilient that people become. And so the more fragile the system is, the more anxious people are. And so you reach for even more convenience in order to soothe yourself. I think that just encourages bad behavior.
--:-- Kyla Scanlon: Like there's like, you know, buying a moisturizer from Sephora, you're going to use the moisturizer as part of a skincare routine. Like that's a little bit more commonplace. But the fact that people might be financing the quote unquote private taxi for their burrito, like that's just encouraging bad financial habits.
--:-- Kyla Scanlon: DoorDash is incredibly expensive. And if you have the option and the ability to go and get your food from the restaurant itself, that's something that we should be probably encouraging people to do so they don't incur those extra fees.
--:-- Kyla Scanlon: And so I think things like that, where it's encouraging people to spend more money than they have for a service that they don't necessarily need, that's when things can get really bad.
--:-- Kyla Scanlon: And there was a lot of jokes during that Klarna DoorDash partnership announcement. It is true, ladies and gentlemen, you can now finance your DoorDash collateralized burrito obligations. I know y'all ass is not going to death for some extra guacamole and chips.
--:-- Kyla Scanlon: Could we have a bunch of people who are just so overextended on credit and they're ignoring their payments because there's elements of financial nihilism where we really do have a massive problem on our hands? And so I look at things like that. I view that a little bit differently than like a moisturizer from Sephora as something that could be quite bad in the future.
--:-- Kyla Scanlon: It sounds like you were sounding a warning. What else did you say in that video to your viewers? What I talked about in that video was sort of the poor impulse control economy.
--:-- Kyla Scanlon: Because what happens when you remove all friction from consumption is that the meal that arrives to your doorstep has no social ties to you. It requires no planning and it leaves nothing behind but packaging waste.
--:-- Kyla Scanlon: So I talked about meme coins. I talked about sports betting and how companies can collect the data on the vices that we have. And so when everything becomes totally frictionless, like when you can order a private taxi for your burrito, that sort of behavior can stem out into things that are probably a lot worse for us, including like gambling on meme coins, gambling on a baseball game.
--:-- Kyla Scanlon: Some people think that I'm crazy because I'm trying to make six figures on a two figure or less budget on FanDuel. The biggest scam that's plaguing the community right now was sports betting, mainly in referring to these fantasy apps.
--:-- Kyla Scanlon: What I just witnessed in the last leg of our Hail Mary parlay is the most disgusting, the most despicable, the most sickening thing I have ever seen in sports history. And so that's what I worry about, is that the convenience and the impulsivity that it allows for allows for the expansion of the grift economy of a world where people are spending money on things that they don't need to, and they're just totally lost in that cycle.
--:-- Kyla Scanlon: You're a commentator. You're a public intellectual. You're also a Gen Z-er, and you talk directly to Gen Z-ers who are operating in the economy. How is your generation using BNPL?
--:-- Kyla Scanlon: A lot of Gen Zers have had very common interactions with debt. Student loan debt is a big part of the life of a Gen Zer. You know, medical bills, anything involving a credit score, like debt has been so normalized for the younger generation that when they see something like BNPL, it's like, oh, this is just casual debt.
--:-- Kyla Scanlon: Hi, my name is Diva and I am $107,000 in debt and I am the Affirman Carolina girl. There's a point when you realize that the consequences of not paying a loan are actually not like that bad.
--:-- Kyla Scanlon: And so I think for young people, they've been raised in the shadow of the 2008 crisis, you know, student loan debt, like I said. So it's just sort of what they do with their money.
--:-- Kyla Scanlon: This is interesting that debt has always been available to Gen Z. If you an older millennial like I am that not really the case You kind of remember getting your first credit card when you were like 22 but there was no Apple Pay You just pay for stuff on your phone And it strikes me that like my nieces and nephews who are teenagers they can do that They have this ease with paying for stuff and taking on debt for stuff that never occurred to me would be an option when I was young.
--:-- Kyla Scanlon: Yeah, I mean, I think a lot of that is structural. So in 2020, their government sent out unemployment checks. I'm asking Congress to amend this bill and increase the ridiculously low $600 to $2,000 or $4,000 for a couple. It's the biggest ever, ever approved in Congress. 6.2 billion, 6.2 trillion dollars.
--:-- Kyla Scanlon: So, you know, we used to get used to the billion. It used to be a million, then it was a billion, now it's trillion. In 2021, the Fed had rates really close to zero. Like, we're always talking about the deficit, we're always talking about how much money the United States as a country owes. The national debt stands currently at about 36.2 trillion dollars.
--:-- Kyla Scanlon: Moody's has lowered the United States credit rating because of an increase of government debt. And so I think for everybody, they're just looking at that and they're like, well, you know, if the government owes all this money, like surely I can have a little bit of debt, too.
--:-- Kyla Scanlon: And then credit scores have become such a core part of the American identity. It really informs a lot of how you can buy a house or, you know, if you can even get certain loans that I think people view debt as structural to them as a person.
--:-- Kyla Scanlon: And that's just increased. And I think it really has a lot to do with the environment that Gen Z has grown up in and the fact that these tools are so readily available and they're so easy to use.
--:-- Kyla Scanlon: Talk to me a bit about how you think about debt. Is it dangerous? us? Well, I think when you look at debt systemically, right, debt's not inherently a bad thing. Like most things, it's a tool. Like social media, you could say it's bad, but it's a tool. It's all about how you use it.
--:-- Kyla Scanlon: Same with debt. You know, BNPL in itself isn't evil, especially if you can pay it all off without having to face those high interest rates. Credit cards themselves aren't evil, but it's really about the system that encourages these sorts of products to be created.
--:-- Kyla Scanlon: So, you know, real wages were stagnant for a really long time. The entry level labor force is really deteriorated. It's very tough to get a job right now. If you're graduating from college and the college wage premium has eroded quite a bit, you know, rent is high because we don't build enough housing, groceries are up.
--:-- Kyla Scanlon: And so I think people are just like looking at the very high prices, the impossibility of ever buying a house, you know, the struggles that they might be facing in the labor force. And it's really like, well, sure, it might be irresponsible to use BNPL to get a moisturizer from Sephora. But like literally, what else am I going to do? Like, I don't see a solution before me.
--:-- Kyla Scanlon: And so I think that's been the big thing with debt is that we've used it as a tool in order to navigate some of the hairier parts about being in the United States right now.
--:-- Kyla Scanlon: It strikes me that what you're talking about is where traditionally like a safety net would grab somebody, right? You need a bridge between last month's paycheck and this month's first paycheck. And I think historically you might say, and I think this is a valid question, look, you can't afford the Sephora lotion right now, so why don't you just wait?
--:-- Kyla Scanlon: And it sounds like what you're saying is that's a bit of a privileged or maybe old-fashioned idea of how paying for things works. Right. And I think why don't you just wait ignores some of the ladder issues that we're facing, like Gen Z, younger people, honestly, millennials in some capacity are facing this really like broken ladder problem where it's like, OK, sure, you know, they could wait to buy that moisturizer.
--:-- Kyla Scanlon: But that would require the entry-level labor market to free up again. That would require wages to really speed up. That would require the housing market to normalize. And so I think a lot of people blame younger people for using debt and using BNPL. And I think you should be careful.
--:-- Kyla Scanlon: I don't think you should be living above your means in an extravagant way, but it really is a psychological buffer of sorts where people are just like, well, I don't know what else to do, so I'm going to go and buy this thing. It is an element of instant gratification, the same thing that we see in social media.
--:-- Kyla Scanlon: But for Gen Z-ers and younger people, there isn't that stability, that expectation of stability in the traditional sense. And so I think these little small luxuries matter, like buying that moisturizer matters, because it is indulgent in a certain way, but it's also a flex of agency in an economy that doesn't feel like it's allowing you into it.
--:-- Kyla Scanlon: It does feel a little bit like there is some American ethos here that says to live is to be in debt. And we've all accepted that. Yeah. I mean, that's kind of the only way you can get by sometimes. You know, there's that misquoted statistic about paycheck to paycheck. Like it's not 60 percent of Americans living paycheck to paycheck, it's far lower.
--:-- Kyla Scanlon: But I think, you know, a lot of people just feel like one wrong move and the whole thing could come tumbling out beneath you. And so we just have these issues that are outside of the realm of like consumer packaged goods being delivered, where it's like as many, you know, policymakers and politicians and pundits have written about where we have to really start thinking through actual solutions to these problems because they're just not going to fix themselves.
--:-- Kyla Scanlon: The incentives are too misaligned.
--:-- Noel King: Kyla Scanlon, she's the author of the book. In This Economy, you can find a link in our show notes.
--:-- Noel King: Miles Bryan and Gabrielle Berbey produced today's show. Amina El-Sadi edited, Laura Bullard fact-checked, Patrick Boyd, and Andrea Kristinsdottir engineered.
--:-- Noel King: Thank you, Matt. It's Today Explained. I'm Noelle King. Thank you.
