THE NEW “BUY NOW, PAY LATER”

For a long time, “buy now, pay later” (BNPL) has referred to the use of credit. However, recently a new BNPL approach has surfaced, and is growing. Today, financial technology (FinTech) companies are using a different method to finance consumer purchases.

BNPL providers include Affirm, Afterpay, Klarna, Zip, and PayPal. The BNPL plan allows consumers to obtain a purchase immediately and then make a series of equal payments, often four payments each due two weeks apart. The first payment is due at the time of purchase.

Most BNPL plans charge interest and late fees. These plans often offer financing to customers with bad credit or no credit. BNPL is used mainly for online shopping although the plan is also available in some stores. Purchases of technology, furniture, clothing, beauty care products, groceries, health care services, and to eat at restaurants are the most common uses of BNPL.

The main benefits of BNPL mentioned by consumers, include to:

  • spread cost of expensive items over time.
  • buy items that they might not otherwise be able to afford.
  • avoid credit card debt.
  • try out the BNPL method.
  • not have to wait until payday to buy an item.

When selecting a BNPL plan, search for those with low or no interest and low or no late fees. Remember when using BNPL, you are still taking on debt. This easy access to credit often results in overspending. Some people will make purchases through multiple plans resulting in greater financial difficulties.

Be sure you can pay on time to avoid late fees and interest charges. Unlike traditional loans, BNPL providers may not report to credit bureaus, so you are not building a credit record.

For additional information on BNPL, click on these articles:

Article #1

Article #2

Teaching Suggestions

  • Have students ask if any friends or relatives have used a BNPL plan. Obtain information about their experiences.
  • Have students create a visual poster, slide presentation, or video with the benefits and drawbacks of BNPL plans.

Discussion Questions 

  1. What aspects of BNPL might create financial difficulties?
  2. Describe actions a person might take to evaluate a BNPL plan.

SELECTING AN ONLINE BANK

More and more bank customers are using online financial-service providers. Online-only (digital) banks provide traditional financial services in an online format.  FinTech companies (neobanks) offer innovative banking services with an emphasis on emerging technology, often through apps.

When deciding which online bank to use, consider these factors:

  • FDIC Insurance, Federal Deposit Insurance Corporation (FDIC) covers deposit accounts against bank failure up to $250,000 per depositor and type of ownership category. To determine if a bank is protected by the FDIC, go to https://banks.data.fdic.gov/bankfind-suite/bankfind
  • Fee-free ATMs, to avoid costly charges. Many online banks have an extensive network of ATMs, while others do not have ATM access.
  • High-yield savings accounts, with lower operating costs many online banks offer savings accounts with higher yields. Be sure to compare the rates, rules, and regulations at various online banks, such as the required minimum deposit and minimum balance. 
  • Multiple banking products, depending on your goals and needs, you might choose a bank that offers an array of financial services–checking, saving, CDs, debit card, ATMs, credit card, and loans.
  • Financial management tools, FinTech apps and online banks offer innovative financial planning tools to help you save money, such as with a round-up savings component, automatic savings deposits, and low-cost investment funds. Other apps include features for achieving goals to pay off debts or save for a vacation, or savings based on your spending patterns.
  • Investment guidance, robo-advisors provide portfolio suggestions based on financial goals and risk tolerance with the use of artificial intelligence. 

For additional information on selecting an online bank, click here.

Teaching Suggestions

  • Have students talk to others to learn about factors that were considered when selecting a bank or other financial-service provider.
  • Have students create a visual proposal (poster, slide presentation, or other format) to highlight the main factors to consider when selecting an online bank.

Discussion Questions 

  1. What online banking features could help a person improve their financial position?
  2. Describe actions a person might take to select an online bank. 

Giving A 6-Year-Old A Debit Card to Teach Wise Spending…Really!!

Kids are no longer using a piggy bank to obtain financial responsibility. Instead, digital tools, such as debit cards and apps, are the basis for learning smart spending and wise money management.  Many of these products are prepaid cards that help kids track their spending, and also include customizable oversight features for parents.  Some available products include:

  • FamZoo (famzoo.com) makes use of parent-paid interest to encourage saving. Common users of the app are preteen and young teenagers, but may also be used for kids from preschool to college.
  • Greenlight (greenlightcard.com) allows parents to control the stores at which the debit card can be used. Greenlight plans to introduce an investing feature to move users to a higher level of financial literacy.
  • gohenry (gohenry.com) is an app for kids (ages 8 to 18), but may be used by younger children. The emphasis is on building money management confidence in a safe setting while learning to spend and save.
  • Current (current.com) is a custodial bank account aimed at teenagers. Parents may also open accounts for younger children.

These products allow parents to channel digital funds to their children to pay weekly allowances. Also, kids may divide their money into accounts for saving, spending, and donating to charity.  Most apps have a monthly fee, ranging from $3 to $5.

When using prepaid debit cards with children, consider the following:

  • Spend time talking about why the kids want to buy various items, and why certain household tasks earn money and others do not. Expand the Connect the discussion to talk about total family finances as well as money attitudes and values.
  • Allow freedom to make spending decisions to give kids experience at managing money, and to make mistakes from which they will learn.
  • Ask older kids to buy household items, even though they might be reimbursed. Buying shampoo, toothpaste, and snacks will prepare them for when they are on their own. Also consider billing them for monthly expenses, such as the cost of their cell phone.

For additional information on prepaid debit cards for kids, click here.

Teaching Suggestions

  • Have students conduct online research to evaluate apps that might be used by parents to teach their children smart spending and wise money management.
  • Have students talk to parents to obtain suggestions that might be used to teach wise money management to children.

Discussion Questions 

  1. What are the financial, social, and relational benefits of children learning smart spending and wise money management early in life?
  2. Describe some possible money management learning activities for children that do not involve the use of technology.

What is FinTech?

Technology impacts every aspect of personal finance. FinTech (financial technology) involves apps, software, and other innovations for banking and financial activities, which includes PayPal, Venmo, and cryptocurrencies, such as Bitcoin. FinTech companies use online activities, mobile devices, software, apps, and cloud services to for financial transactions. Over 1.5 billion people around the world do not have access to formal banking. FinTech can provide these unbanked people with financial services through easy-to-use technology.

The main categories of FinTech for consumers are:

  • Crowdfunding, such as Kickstarter and GoFundMe, which allows individuals or businesses to go directly to potential investors for funding.
  • Blockchain and cryptocurrency, such as Bitcoin, with improved verification for financial transactions.
  • Mobile payments through a smartphone.
  • Insurance coverages provided by online start-ups.
  • Robo-advising provides portfolio investment recommendations and allocations based on algorithms. For stock-trading, investors buy and sell stocks using apps such as Robinhood and Acorns.
  • Budgeting apps, such as Mint and You Need a Budget (YNAB), monitor and plan spending.

For additional information on FinTech, click here.

Teaching Suggestions

  • Have students talk to several people to obtain information about their experiences with FinTech products.
  • Have students create an app prototype for a proposed FinTech product to help people make better financial decisions.

Discussion Questions 

  1. What might financial literacy and money management activities be improved with FinTech?
  2. Describe concerns that might be associated with expanded used of FinTech.

Banking Activities of the Future

As you walk into your bank, you are met by a video teller. These robo-banks allow you to connect with financial specialists based on your needs through a virtual concierge and videoconferencing. These banking staff members are located hundreds and thousands of miles away.  Banks benefit from these actions with fewer branches and fewer employees covering customers in many geographic settings.

Other actions being taken by banks and other financial institutions to better serve customers include:

  • A variety of services to enhance the banking experience, such as offering co-working spaces for customers who work remotely.
  • Payment systems in the athletes’ Olympic pins to complete purchases transactions at the 2018 Winter Games.
  • Customers can pay with a facial recognition scan in some retail settings.
  • Financial services offered through Alexa (Amazon), Siri (Apple), and Google Assistant allowing bank and credit card customers to check their balances, pay bills, and send money.

For additional information on technology banking trends, click here.

Teaching Suggestions

  • Have students talk to two or three others to obtain their ideas about: (a) future banking technology, and (b) the setting and services of the bank branch of the future.
  • Have students create a presentation or video that communicates future banking activities.

Discussion Questions 

  1. What technology services do you desire from a bank for your financial services?
  2. Describe actions banks might take to better serve the needs of customers.

Overdraft Opt-in or Opt-out?

Most financial institutions offer overdraft programs for checking accounts, which for a fee covers a transaction where there is not enough in the account.  However, this service can result in several fees before the next deposit is made.  For debit cards, an overdraft fee cannot be charged unless you have agreed (“opted in”) to these fees.

To reduce or eliminate overdraft fees, these actions are suggested:

  1. carefully track your balance; sign up for low-balance alerts
  2. check your balance when making a debit card purchase; also consider other checks that may not yet cleared
  3. do not opt-in to an overdraft program for your debit card, or opt-out if you are currently opted in; while your debit/ATM may be declined, you will avoid high fees
  4. link your checking account to a savings account to cover overdrafts
  5. contact your financial institution to determine if you are eligible for a line of credit or a linked credit card to cover overdrafts
  6. compare account fees at other financial institutions

Complaints related to overdraft fees or other financial services may be submitted at   http://www.consumerfinance.gov/complaint/ or by calling 855-411-2372.

For additional information on overdraft programs, click here.

Teaching Suggestions

  • Have students search online or contact the costs associated with overdraft fees at various financial institutions.
  • Have students prepare a creative presentation describing actions to take to avoid overdraft fees.

Discussion Questions 

  1. Describe situations that might result in overdraft fees.
  2. What are methods to take to avoid overdraft fees?

Avoiding Payday Loans

Payday lenders see borrowers as prey, people floundering in financial difficulty.

The Consumer Financial Protection Bureau is planning to release proposed rules related to loans and other short-term borrowing, such as auto title loans.  These efforts will include requirements that payday lenders make sure borrowers are able to repay the loans.

Payday loans are usually viewed as a temporary financial solution.  However, quite often borrowers need more time.  As a result, consumers get trapped in rolling over their debt and may be charged as high as 700 percent on an annual basis.  According to the Pew Charitable Trusts, 12 million Americans use payday loans each year, resulting in $7 billion of interest and fees.

For additional information on payday loans, click here.

Teaching Suggestions

  • Have students ask people to describe situations in which a person might use a payday loan.
  • Have students create a list of methods that might be used to inform others of alternatives to payday loans.

Discussion Questions 

  1. What are benefits and drawbacks of payback loans?
  2. What alternatives might be considered instead of a payday loan?

Newcomer Money Guides

While beneficiary, collateral, and fair market value are familiar to many, these terms can be especially confusing to those with limited English-language skills. In an attempt to assist various people, the Consumer Financial Protection Bureau has created the Newcomer’s Guides to Managing Money to provide recent immigrants with information about basic money decisions.  These guides offer brief suggestions to those who are new to the U.S. banking system.  The guides also include guidance for submitting and resolving problems with a financial product or service.

The Newcomer Guides include these topics:

  • Ways to receive your money, comparing cash, check, direct deposit, and debit cards.
  • Checklist for opening an account, to assist with starting a bank or credit union account.
  • Ways to pay your bills, providing guidance on whether to pay by check, debit card, credit card, or online.
  • Selecting financial products and services, providing assistance on deciding which financial services are right for various household situations.

Print copies of the guides can be ordered or downloaded. These publications are available to English and Spanish with additional languages to be offered in the future.

For additional information on money guides for newcomers:

Article #1
Article #2
Article #3

Teaching Suggestions

  • Have students ask people to create a list of financial planning terms that people find confusing.
  • Have students suggest methods to have people learn about confusing financial planning terms.

Discussion Questions 

  1. What financial problems might be encountered by people with limited English-language skills?
  2. What actions might be taken to assist various groups to better understand banking services and money management activities?

Robo Investment Advice

Automated investment services are expanding.  Many financial service companies are offering “robo advice,” in which investors complete an online questionnaire and a computer program generates and monitors a portfolio of funds.  Robo-advisers are also designed to automatically rebalance a portfolio based on changes in the market as well as any changes in the amounts allocated to certain investments.

With many investors already making their own trades online, investment companies believe that robo advisors have these additional benefits:

  • lower costs for obtaining advice and conducting transactions.
  • an ability to adjust the portfolio for tax purposes by selling shares that have declined to offset gains.
  • an easier investment approach for younger clients with less-complicated financial lives.

 

Some will be concerned about automated portfolio management.  Human advisors will still be available to address issues about mortgages, insurance, estate planning, retirement income, and other topics that robo-advisers are not yet equipped to answer.

For additional information on robo advice, click on the following articles:

Article #1
Article #2
Article #3

Teaching Suggestions

  • Have students ask people to describe the process they use to select investments.
  • Have students create a framework to analyze when using robo advice might be appropriate for an investor.

Discussion Questions 

  1. What are benefits and drawbacks of robo advice?
  2. What factors might be considered when using robo advice for investment decisions?

 

Avoiding Banking App Errors

While smartphone apps have made banking easier than ever, threats to financial security continue to grow.  However, some simple actions can be taken to avoid banking app mistakes.

1.    Don’t conduct banking transactions on public Wi-Fi networks since they are vulnerable to hackers. Use a virtual private network (VPN), which provides added security and encryption.
2.    Log out after your session to prevent a thief from getting access to your bank account.
3.    Select a not-so-obvious username. Create password recovery questions with responses that are difficult to obtain from public records.
4.    Update your app when a new version is available to take advantage new security features.
5.    Create a strong password with special characters, and it should be at least 12 characters long. Change your password every 90 days.

For additional information on banking app errors, click here.

Teaching Suggestions

  • Have students talk with others about their experiences using banking apps.
  • Have students locate online information about the latest security features fof banking apps.

Discussion Questions 

  1. What are benefits of costs of banking apps?
  2. How might banking apps be improved for increased financial security?