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Gen Z shoppers are spending big right now, but all those holiday purchases could come back to bite them

Business Insider logo Business Insider 12/10/2022 ahartmans@businessinsider.com (Avery Hartmans)
Kena Betancur/Getty Images © Provided by Business Insider Kena Betancur/Getty Images
  • Gen Z shoppers came out in full force during Black Friday and Cyber Monday this year. 
  • But many of those shoppers are planning to use buy now, pay later services to help stretch their budgets.
  • BNPL seems like an easy way to pay for purchases, but it's causing some young consumers to rack up debt.

Gen Z shoppers are driving spending this holiday season, but the willingness to shop may have a hidden risk attached. 

Despite predictions of a lackluster holiday shopping season this year, shoppers came out in full force during Black Friday and Cyber Monday. According to data from the National Retail Federation, a record 196.7 million US consumers shopped during the five-day holiday shopping period starting on Thanksgiving — and a lot of those shoppers were Gen Zers, CNN reports

"One standout this Black Friday was the high turnout of Gen Z in stores," Kristen Classi-Zummo, apparel industry analyst with market research firm NPD, told CNN. "Younger consumers flooded the mall, treating Black Friday as a social event. They came early, they came with friends, and they came to shop."

And while retailers are likely happy to see droves of young shoppers, those same consumers are at high risk of overspending and racking up debt during this year's holiday shopping season. 

Younger shoppers are likely to experience the most financial stress this year, an August Bankrate survey of 2,415 adults found. Nearly one in four millennial and Gen Z consumers said they expected to feel pressure to spend more during the holidays than they're comfortable with, compared with just 12% of Gen Xers and baby boomers. 

What's more, 30% of those young shoppers said the holidays would likely strain their budgets, and 32% said they were expecting to go into debt thanks to their holiday shopping, either by paying a credit card off over multiple cycles or using a "buy now, pay later" service, the survey found.

Another survey of 1,000 shoppers, conducted by Forbes Advisor and OnePoll, found that 64% of people planned to use BNPL services this year, with 70% planning to use those services to spend more than they planned on. 

Retailers are already seeing an increase in shoppers turning to buy now, pay later: BNPL orders jumped 85% during Cyber Week, or the period between Thanksgiving and Cyber Monday, compared with the week prior, according to data from Adobe.

Enticing but risky

BNPL services have become especially popular among young consumers because they offer a seemingly easy, low-stakes way to pay: they typically have low or no fees and offer quick credit approval, and bills can be paid off in four, no-interest installments. But these services entice consumers to buy more and borrow more, which means shoppers may be taking out multiple loans at a time, which they may not be able to repay, according to the Consumer Financial Protection Bureau

Frequent BNPL use has led some young shoppers to rack up thousands of dollars in debt and tank their credit scores. During last year's holiday season, more than half of shoppers surveyed by online bank Oxygen made BNPL purchases they couldn't pay off, CNBC reported.

Marshall Lux, a senior fellow at the Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School, told CNBC that paying for gifts in installments "means a merry Christmas, but in the long run for many will hurt their credit." 

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