I think it was a week ago when I realized I was at the mercy of monthly payments. I realized I had a money missing from my account and in my panic I began tearing through my online statement. There I saw that there was a charge of $112.01 taken out and sighed and sigh of resigned familiarity. Since February 2023, my roommates and I have been paying back Paypal in monthly installments for a loan we took out to go and see Beyoncé. Yes despite the insanity of needing a loan to go to a concert we went anyway because we just really really wanted to. Plus with the price of concerts rising drastically in the last few years, I see this becoming the only option for many int he future. However, that means that we have this anvil hanging over us for the next few months in addition to the other monthly charges that haunt us from day to day. From pay in 4 plans to subscriptions to access our documents and work, these monthly payments and subscriptions take a massive bite out of our finances, forcing us into more debt. This is the modern American story but how did we get here and what can we do?
For some context, the subscription business model is one in which a service or product is provided to consumers with the understanding your access is renewed monthly with a fixed, recurring payment. This can be done directly though the site of service or through a third party provider like Klarna, Affirm, or Paypal. Typically, these sites take large purchases and turn them into recurring payments until they are paid off. For example, if you want to buy a $200 pair of shoes but can’t afford the full amount at that time, Klarna might be an option at checkout. If selected, Klarna will pay the full $200 and you pay Klarna $50 that day, another $50 in 2 weeks, and so on until the full $200 has been paid off. Klarna then charges the retailer a fee off the top, which is how they make billions. This way, large purchases are less immediately burdensome and objects that were once considered impossible to afford are now within reach. While this may seem like a positive on its face, the true consequences of being on the hook for weeks sometimes months can be severe.
With the proliferation of these services, more vendors have utilized them, raising their prices in part to justify their existence. A good and devastating example is the app Instacart, that saw massive success at the height of the pandemic. For many immunocompromised and covid-conscious people, Instacart became the go-to way to get groceries. However, prices began to spike due to shipping limitations created by the pandemic and then exploitative price-gouging by our food providers. Around 2022, I noticed that Klarna had been added to the app as a means to check out. They were literally splitting groceries into 4 so that people could afford their food. Which is especially diabolical considering most people need to buy groceries of some kind at least once a week. Theoretically, you could be paying for 4 different shopping trips all at once and before long, you’re stuck in a debt spiral simply for buying food. Surprise! That’s the point. The longer you’re beholden to these companies, the more they work their way into our shared collective conscious. Eventually, they become institutions that we don’t remember living without. That’s guaranteed money and growth and guaranteed debt for consumers. For larger loans that charge interest, the gains are even larger.
Subscriptions have also gotten out of hand, if I do say so myself. Items that were once usable after an initial purchase have now switched over to a model of non-ownership. To have access to Microsoft products that include powerpoint, word, and excel in addition to all of your files, you now have to pay a yearly fee of $99 or $9.99 a month. The same for gmail, as their free storage is too small for the average consumer, you now have to pay $1.99 a month to ensure your emails aren’t deleted past a certain storage amount entirely. Even if you decide to stop paying for these services, you’re stuck paying so that you don’t lose documents that are often exclusively stored in their system. This, as the prices of services we have already accepted as subscriptions continue to rise with decidedly less benefit to the consumer. For context, my hulu that is only 2 screens, no ads, and curiously less good shows than ever, costs me about $19 a month.
While we cannot point a finger at one individual cause, lack of regulation plays a big part in why companies have been allowed to squeeze us like this. As of now, there has not been much as far as widespread legislation to regulate these services at all. The OCC has issued a guidance on these services but it’s only addressed to banks to make sure they are engaged in best banking practices as these services further integrate into our lives. There has been no official warning on the debt dangers they pose. Especially as it’s been confirmed that in some cases missed payments will be reported to credit bureaus (CNBC.com) but as far as I’ve seen, on-time payments do nothing to improve your score.
The result of these services, their unchecked growth, and corporate greed in general is the destruction of American personal finances. According to Bankrate's Annual Emergency Savings Report, as of this year 56% of Americans cannot afford an emergency expense with their savings and would have to borrow money to cover it. The same report also states that 1 in 3 Americans have more credit card debt than emergency savings. This has also spells disaster in a world where the new necessary amount in your bank account to retire comfortably is $1.46 million dollars according to the Wall Street Journal (I was going to include a joke about pay in 4 preventing us from getting to this number but I have no idea how anyone who isn’t already rich can get here at all, pay in 4 be damned). Not to mention in combined with the rising costs of rent and car ownerships means that more and more people have less and less money to spend on things like school or homes or even kids. When your entire paycheck is dominated by increasingly high monthly payments, the end result isn’t just that you spend everything and own nothing. The you of the future owns nothing as well.
Payment splitting on groceries is so wildly sinister. 🤯