The Rise of ‘Cute Debt'

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On the subway a few weeks back, I noticed an ad for a 'buy now, pay later' service from Cash App. It read: 'Little payments are so much cuter.' This ad wasn't made for men, I thought.
'Buy now, pay later' is promoted as interest-free borrowing, which many people, frightened by the idea of going into debt, see as safer. But miss a payment, and the late fees kick in—$8 here, $6 there. Miss payments on a few different orders, and the fees add up fast. You could be paying much more in the end than you would if you were paying interest on a credit card. Worse, your account could be sent to a collection agency, destroying your credit score.
On average, men have more total debt than women, but women are 68 percent more likely to use installment payment services such as Afterpay, Klarna, Affirm, and Quadpay, a 2024 study by the Federal Reserve Bank of Boston found. This might be less about how women spend money than it is about where they spend it. Although buy-now-pay-later services are accepted on purchases as varied as airfare and electronics, clothing accounts for more than half of the services' gross merchandise value. And women are the bulk of those customers.
This is easily gleaned from the services' advertising campaigns. Klarna, for example, paired up with Paris Hilton to create the 'House of Y2K,' an interactive pop-up devoted to Millennial nostalgia selling a limited-edition 'Paris Hilton x Klarna' velour tracksuit; Klarna also partnered with the fast-fashion brand Shein on pop-up stores, including a bubble-gum-pink party bus/traveling store emblazoned with the phrase In Pink We Trust. Murals in Los Angeles and New York featured illustrations of cute strawberries and ice-cream cones and the tagline Afterpay is like eating the whole carton and spreading the calories out over 6 weeks.
The business model of 'buy now, pay later' companies is not really about selling their services to women directly. It's about selling themselves to the retailers that want to sell things to women. Lots of online shoppers load up their carts but, once they see the total cost, don't follow through. Companies such as Afterpay pitch themselves to merchants by promising to solve this issue of 'cart conversion'—shoppers are more likely to click 'Pay now' if they have the option to pay less upfront. Jessa Loomis, an associate professor at Newcastle University, in England, is an expert on these companies; she describes herself as a 'feminist economic geographer' whose research focuses on the 'everyday effects' of global finance. The companies make their real money not from the fees they charge consumers, she told me, but from what they charge 'the retailer or merchants to be able to have 'buy now, pay later' embedded in their payment ecosystem.' They are essentially telling brands, 'We can get women to spend money here.'
And it's working. 'Buy now, pay later' has become the gateway drug to consumer debt for more and more women.
I first used Afterpay in 2018, when I was 20. I had a sorority formal coming up, and the other girls at my SEC school would be wearing their wealth loudly. I couldn't be the one in the same sequined bodycon number that I wore to last year's spring fling. I filled my online cart with five dream dresses, planning to go back and narrow my choices down, dress by dress. But then I noticed an alternative way to pay. I could have all the beautiful gowns at once, for only a quarter of the total cost up front.
The service required three subsequent payments at two-week intervals. But if I promptly picked my favorite dress and returned the rest, I'd be off the hook for the second payment by the time it was due. My plan seemed foolproof. As long as I was prompt with my returns and consistent with my payments, I could have what I couldn't afford. Afterpay quickly became a habit.
[Mac Schwerin: The 'buy now, pay later' bubble is about to burst]
Throughout my childhood, my Dave Ramsey–fearing parents warned me of the dangers of credit cards. They kept their cash in envelopes, and when the envelope labeled Eating Out was empty, we'd be enjoying Hamburger Helper for the rest of the month. I didn't really understand how interest or building credit worked. Afterpay felt like a safer alternative, but it got me used to 'carrying a balance.' When I did get a credit card a few years later, I thought I could pay 'in installments,' but compounding interest quickly made my debt mount. Before I knew it, I was paying off only the minimum each month, and drowning in debt.
I was embarrassed to talk about my debt with my friends, but the more I asked around, the more I realized I wasn't alone. None of the men I asked had ever used Afterpay or its competitors. But many of the women had.
'I remember the first time I used 'buy now, pay later,'' one friend—who's now 27 and owes $16,000 in credit-card debt—told me. It was for a clothing haul before a family trip to Europe during college. 'I was like, Okay, I'm gonna return half of this. So I'll do the four payments so that I can pay a small payment now and not have to cough up all that at the same time. I didn't end up returning any of it. Shocker.' She said that, like me, she had found installment payments more palatable than putting the full expense on her debit or credit card, but that they led to out-of-control spending, which in turn led to more debt.
Another friend, who first used Afterpay when she was waitressing in college, described it as 'a bite-size way to pay for things I couldn't really afford.' Buying indulgences made her feel guilty; smaller payments assuaged the guilt. 'Never once did I think that I couldn't really pay for these things. The way I budgeted was week to week.'
Lots of our spending was driven by trying to keep up with our friends—not just the real ones, but also the parasocial ones we follow online. Social-media influencers seem to be just like us, only one step and hundreds of thousands of dollars ahead. 'The essence of influencer culture is a kind of low-grade gaslighting about what is possible and what is attainable,' Chelsea Fagan, founder of The Financial Diet, a media organization focused on promoting financial literacy among women, told me. Fagan began a blog to hold herself financially accountable when she found herself in credit-card debt at age 25. Social media leads us to believe that 'every purchase we make now is sort of a micro-expression of identity. Whether it's the smoothie that we're drinking or the place that we travel to or the bag we're holding, all of it is kind of an expression of the type of woman we are.' But 'there's just such a lack of transparency, and of financial honesty, around it.'
One of my friends—who is in $15,000 of credit-card debt—describes social media as 'our generation's homeownership.' Our feeds, with their photos of meals or outfits, are the way we prove that we've made it, she said. 'It's like our white picket fence,' in a world where none of us can actually afford a house.
Naturally, 'buy now, pay later' companies have invested in influencer marketing campaigns, resulting in a flood of 'get ready with me' videos in which women show themselves purchasing products with Afterpay. Many are clearly ads: 'Hot girls love all kinds of flexibility,' one TikTok comedian says in reference to Klarna; a catchy Cash App–inspired rap goes: 'Cash App, I can make that cash clap.'
[From the January/February 2021 Issue: Why is there financing for everything now?]
But other videos masquerade as financial advice: 'Basically, you just, like, split your payments up into, like, four manageable chunks, then you pay it over time. It's called shopping responsibly, okay?' the comedian says in another Klarna-sponsored sketch. 'Let's be real—ticket prices and new clothes really add up,' an influencer says over footage of her attending a music festival. 'This is where Klarna helps me.' In small type, near the bottom of the screen, a disclaimer: 'Borrowing more than you can afford or paying late may negatively impact your financial status.'
Lots of people my age like to use the phrase girl math to justify reckless spending. It's only partly a joke. Didn't buy that $700 Gucci wallet? Now you have $150 to spend on dinner out. Girl math! A man bought your drink last night? Now you have extra money for martinis with your friends. Girl math!
'I hate the idea of 'girl math,'' Bola Sokunbi, the founder of Clever Girl Finance, told me. 'Math is math. And if it doesn't make sense as a purchase, it just doesn't make sense. Don't put girl on it and make us seem like we are stupid.'
The phrase 'makes it seem that it's cute or silly to not understand finance,' Haley Sacks, the woman behind the popular Instagram account Mrs. Dow Jones, told me. 'It feeds the stereotypes that money is masculine and women should just spend it.' She said many young women confuse consumerism with empowerment. But 'you don't want to glamorize being out of control.'
This year, buy-now-pay-later services are predicted to hit nearly $117 billion in transaction volume, thanks largely to young, female buyers. The biggest danger is that ''buy now, pay later' normalizes using debt to live,' Sacks says in one of her videos. 'One moment, you're financing your Coachella outfit; the next moment it's groceries.' And indeed, this is happening more and more frequently—a quarter of 'buy now, pay later' customers say they use an installment-payment service to shop for food.
This summer, though, FICO began including buy-now-pay-later loans when calculating credit scores, and Affirm began sharing its Pay-in-4 customers' data with the credit bureau Experian. Now that credit scores are directly at stake, savvy customers may opt out of paying in installments. For younger customers desperate to get their hands on the next new thing, it might not matter. It wouldn't have stopped my 20-year-old self's shopping spree. But at least buy-now-pay-later loans will be seen as what they always were: debt.
Article originally published at The Atlantic