Some back-to-school shoppers turn to BNPL to cover higher prices: TransUnion survey

Some shoppers dealing with increased prices on back-to-school items are using everything in their arsenals to tackle the extra costs, including buy now, pay later (BNPL), according to recent survey data.

New research from TransUnion found that 55% of consumers said they expected to spend more on their back-to-school shopping this year, with inflation driving the increase. 

And more than one-third of these consumers said they have already used or plan to use BNPL — which is an interest-free installment payment plan that's available at many major retailers — to break up the cost of their back-to-school purchases. The back-to-school shopping trends research was conducted via an online survey of 1,000 adults in July 2022.

Of the consumers using BNPL for back-to-school shopping, nearly two-thirds of them, or 62%, said they are doing so to buy books and other items needed for school, while 52% said they are using it to buy an expensive school-related item, like a computer, the survey said.  

Millennials are by far the largest group of consumers opting to use BNPL for this purpose, with 47% of that generation using the alternative financing option for their back-to-school shopping, according to TransUnion. 

"Families are especially hard hit by inflation, and back-to-school shopping represents a significant cost on top of everyday expenses," Cecilia Seiden, vice president of TransUnion’s retail business, said. "The ability to spread those payments out over time, interest-free, is a very attractive option to parents and students who are already stretched thin financially."

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BNPL increasingly embraced by shoppers

Openness to using BNPL rose significantly this year, with 37% of shoppers saying they would use the financing option for purchasing back-to-school supplies, according to TransUnion. The company said that this is up from just 2% of consumers who responded to its 2021 holiday retail report. 

What's more, the survey said that BNPL usage was consistent across income level. Lower income consumers were more likely to use BNPL for necessities like supplies or clothes, whereas higher income consumers were more likely to use the payment option for expensive items that are desired but not necessarily required for back-to-school, such as a TV or Peloton, TransUnion said.

"One reason BNPL is increasing in popularity is that it provides financial inclusion for people who don't have access to credit cards or any other sources of traditional loans," Vipin Porwal, CEO and founder of Smarty, an LA-based online shopping portal, said. "BNPL also comes without the interest rate for a certain timeframe. So, it can be a very good tool to purchase items that one wants to acquire now and spread out that payment."

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Buy now, pay later can be risky, experts say

Some experts have warned that BNPL may not always be a good financial option for consumers, especially in a rising interest rate environment where costs are predicted to increase.

Shoppers need to be aware that a missed installment payment could mean late fees and other penalties, Fabio Fernandes, head of communications at the Consumer Choice Center, a consumer advocacy group and nonprofit organization, said. It could also be reported to the credit bureaus and end up on a consumer's credit report, he continued. 

"Good financial advice for parents feeling the pressure of high inflation is to avoid buying essentials like back-to-school items in installments," Fernandes said. "With soaring inflation, buying and paying now is much better if you have disposable income. Paying later sometimes means putting an additional burden on your household budget when inflation rises further, and wages can't keep up."

Consumers can opt for more traditional tactics to pay rising expenses, Matthew Gilbert, a lecturer at Coastal Carolina University, said.  

"Options include budgeting conservatively, couponing aggressively, and prioritizing cautiously," he said.

Shoppers might also consider turning to store brands, which are more reasonably priced than their branded counterparts, to find savings, Gilbert said. Cost-conscious consumers have also turned to outlets and dollar stores to alleviate spending, as well as thrift stores.

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