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Buy now pay later schemes leaving young Kiwis ‘over-indebted’ – academic

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New research by the Auckland University of Technology shows young adults are taking on dangerous amounts of debt through buy now pay later (BNPL) schemes like Afterpay and Laybuy.

Co-author and senior lecturer in finance Ayesha Scott said the survey of 705 young adults aged 18 to 34 indicated thousands more could be in serious debt.

“Over 190,000 young Kiwis are likely to be either over-indebted or at severe risk of it,” she said.

“Buy now pay later had a really strong link to increased over-indebtedness, above and beyond other debts.”

Services like Afterpay let customers buy products in smaller instalments over several weeks, but one in five survey respondents did not view this arrangement as debt.

debt generic

Photo: 123RF

“Up until very recently, BNPL escaped regulation,” Scott said.

“This is because our definition of debt is quite specific: it needs to be more than eight weeks and have an interest rate attached.”

Most providers did not fit this definition because they limited the repayment period to six weeks and did not charge interest.

“Due to this loophole in our technical definition of debt, BNPL providers were able to market themselves as not debt, and this messaging and slick marketing has really cut through,” she said.

“If it looks like debt, it’s probably debt. But due to a technicality, these providers have been able to market themselves as being different.”

Almost 70 percent of the survey respondents had used BNPL at least once.

And 20 percent were using it “poorly” by incurring frequent late fees, prioritising repayments over daily expenses, or by borrowing from other providers to repay their debts.

But from September 2024, BNPL providers will be required to perform credit checks on their customers.

Scott said that did not go far enough.

“I think there should be affordability checks,” she said. “There absolutely needs to be more oversight and more in-depth regulation that goes beyond what’s already been announced.”

She said the convenience of BNPL services was not worth the damage it caused to 20 percent of young users.

“We’re really promoting and enabling what is a convenient tool at the direct expense of 190,000 young New Zealanders,” she said.

“Those who are using it poorly and are getting into trouble with it, they’re why those protections are needed.”

She said it was important to raise awareness about the darker side of BNPL services.

“What we really want to do is make sure consumers are aware of the pitfalls with these products,” she said.

Laybuy managing director Gary Rohloff said the service aimed to mitigate those pitfalls.

“We strongly believe that BNPL should be offered and used responsibly,” he said.

“It’s for this reason we have always conducted credit checks on customers, meaning Laybuy isn’t available to everyone.”

He said Laybuy was not offered on daily expenses like grocery, fuel and bills.

“We welcome the government’s pledge to introduce appropriate regulation for the sector and think it’s important we raise standards across the industry,” Rohloff said.

A spokesperson for Afterpay questioned the credibility of AUT’s survey.

“Surveying 705 young adults aged is neither nationally representative nor reflective of the way Afterpay is used, more broadly according to Afterpay data,” they said.

They pointed to an August Cabinet paper by the Ministry of Business, Innovation and Employment (MBIE) that noted it was “difficult to demonstrate a clear relationship between BNPL and financial hardship as no substantial quantitative data exists due to the relative newness of the sector and difficulty in assigning causation”.

The spokesperson said 98 percent of purchases through Afterpay did not incur late fees, and 95 percent were paid on time.

Duncan Webb

Commerce and Consumer Affairs Minister Duncan Webb. Photo: RNZ / Samuel Rillstone

Commerce and Consumer Affairs Minister Duncan Webb said BNPL services would be exempt from affordability assessments because they were different from other forms of lending.

“Buy now pay later schemes are interest-free contracts for relatively small amounts of money,” he said.

“They are relatively low-risk, and requiring a full affordability assessment would be disproportionate and could see access to this useful form of cheap credit withdrawn.”

But Webb did not rule out further regulations in the future. “If there is evidence that these measures are not working, further regulation will be considered,” he said.

 

VIA RNZ

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Rookie metal detectorist’s copper pipe discovery turns out to be guns, ammunition

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A Wellington man thought he was about to dig up an old copper pipe with his metal detector before finding two AK-74s and ammunition.

On Wednesday Dan O’Donnell was trying out a metal detector for the first time in the suburb of Berhampore when he detected a faint signal, so he started digging he told Midday Report.

“It got bigger and bigger as I got down deeper in the hole and my curiosity was definitely growing and I just thought I’d be digging up some old copper pipe.”

O’Donnell said when he hit a bag that turned out contained the gun and ammunition, he thought it was a bit suspicious.

“To be honest I just had no idea what to expect – like it could have been some old rubbish.”

Metal detectorist finds guns in Wellington

The items were buried deep in the ground. Photo: Supplied / Dan Donnell

He said the items were buried very deep and had tree roots growing over them, so it was clear they had been there a long time.

“When I fully uncovered it, I could see that there was newspaper on there dating to 1993 so it had been there for 30 years.”

He called the police immediately but wasn’t concerned due to the obvious age of the items.

Metal detectorist finds guns in Wellington

Photo: Supplied / Dan Donnell

O’Donnell said he posted the photos to a metal detecting group with people telling him it was “the find of a lifetime”.

He said he would continue metal detecting but acknowledged his future finds might not be as exciting.

“The dream is to find a gold coin or something like that, something with a bit of historical significance but it’s going to be a bit of a comedown from here I think.”

Police have told O’Donnell that the guns are AK-74s.

Metal detectorist finds guns in Wellington

Photo: Supplied / Dan Donnell

According to Britannica, the AK-47, a Soviet assault rifle, is possibly the most widely used shoulder weapon in the world.

Almost from when it was officially adopted by the Soviet military in 1949, the AK-47 was recognised as being simple to operate, reliable under trying conditions, and amenable to mass production.

During the 1970s, the AK-74 was adopted. It adapted the basic Kalashnikov design and a later version, the AK-74M, was the main infantry weapon of the Russian army into the 21st century.

Police have told RNZ enquiries are being carried out and a forensic examination of the items will be conducted.

VIA RNZ

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Households still in grip of high food costs

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Whangārei mother of two Kyla is struggling with the increased cost of food.

“We spend $300 to $400 a week and I feel like most weeks that is not even a trolley full. Every week it gets more expensive, we buy the same stuff pretty much every week and I notice a $1 to $2 increase on items every week,” she says.

They previously would have eaten meat every night but now try to have a couple of “meatless” nights each week.

Most of her income went on covering daycare costs, she said, and her husband worked full-time as a truck driver.

“It’s ridiculous the price of stuff. We shop at multiple different shops to get specials and it still doesn’t make a difference. My son also has food needs as he’s got ADHD so only eats certain foods, which we have to buy for him. Our daughter eats the complete opposite so we have to cater for both children and it feels impossible some weeks.

“We used to have takeout nights but we can’t justify spending over $50 a week on that.”

Auckland woman Julie has been feeling the pinch, too.

“I have a child who loves to bake and a lot of the essentials for that, like butter, have gone up, and that’s been a bit tricky to manage, as we want to encourage his interest but also are mindful of costs at times when money is tight.

“My partner lost their job and we had a period of lower than usual income and it was very stressful having to rely on the credit card for groceries until he got a new job. We were lucky too; my income is high and we had savings. I can’t imagine how hard it is for those living pay to pay.”

Food inflation ran hot in recent years, peaking at year-on-year increases of more than 12 percent in the middle of last year.

While prices have been softening so far this year, a monthly lift in April was the first increase in three months.

Household living costs data shows that between 2008 and 2021 the proportion of income being spent on food lifted from 18 percent to 21 percent.

Woman shopping at the supermarket, she is checking a long grocery receipt and leaning on a cart, budgeting and lifestyle concept

Photo: 123RF

ASB senior economist Kim Mundy said for the lowest-income New Zealanders, the proportion had risen from 19 percent to 22.2 percent between 2008 and 2023.

A researcher at Kore Hiaki Zero Hunger Collective, Jennie Sim, said her analysis showed food prices had lifted about $40 to $50 a week year on year last year for a two-adult, two -child household.

Solo parents’ costs were up about $30.

But she said that did not reveal the full extent of the impact on families, because many would not have been able to cover the increased costs.

“The reality is most households on low incomes don’t spend that money because food is discretionary, it’s the one thing they can squeeze… they don’t have that money left after their housing costs and their fixed living costs so they’re spending a fraction of what they should to get nutritional food. They’re trying to get assistance via community food banks.”

Fincap, the organisation that supports financial mentors, said the mentors in its network reported a drop in spending on groceries for their clients in 2023, to 19.6 percent of income because of the impact of other costs.

Mundy said that substitution effect was seen across the income brackets.

For the highest-income households, the proportion of income spent on food lifted from 15.9 percent in 2008 to 20.4 percent in 2023.

“Depending on where you are, if you started shopping at Farro now you’re moving to New World then Countdown, then Pak’nSave or maybe you’re now just purely shopping supermarket homebrand labels, or stuff that’s nearly expired.

“You can make those substitutions to a degree so there will be an element of that going on. People love that anecdote at the moment of going to the Pak’nSave carpark and you’ve never seen more Mercedes SUVs in your life. There’s that kind of thing the base numbers hide.”

She said it should be the case that food price increases continued to slow.

“We do think that food prices more generally are going to keep coming down. In part it’s driven by the fruit and vegetable Cyclone Gabrielle effect has largely come through, we’ve seen commodity prices globally come down which is helpful.”

But she said there were still shocks – as seen with the increases in olive oil and cocoa in the most recent statistics.

“Those shocks are lifting at the same time as the fresh food prices are falling so we see an offset there. But to the extent that demand is slowing because of tighter monetary policy we should see food price inflation fall just like we’re expecting inflation to fall elsewhere as well.”

VIA RNZ

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South Auckland hotel goes into lockdown after gunshot

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A South Auckland hotel was briefly put in lockdown on Wednesday after a gun was fired.

The manager of the Allenby Park Hotel in Papatoetoe said guests were safe and no one had been injured.

The hotel has since reopened.

The suspected shooter was not known to anyone at the hotel and fled after the incident, he said.

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