Micro-Installments, Macro Impact: The Hidden Cost of the BNPL Economy
The Hidden Cost of Convenience in the Rent-for-Life Economy
Micro-Installments, Macro Impact:
The Hidden Cost of Convenience in the Rent-for-Life Economy
Created by Author via ChatGPT
衣食住行 (yī shí zhù xíng) — Clothing, Food, Housing, Transportation
In Chinese literacy, these four words summarise our goals in our whole life. As we save up money for these expenses, especially for housing, we set our target based on the current housing market price. However, it is worth reviewing the trends in housing prices and real household income over the past 30 years.
Note: Median House Sales Price is an annual average derived from quarterly dataMedian House Sales Price is an annual average derived from quarterly data. Real Median Household Income data.Real Median Household Income data.
Based on the above data, the median house sales price has increased about 3 folds while real household income remains in a similar realm (<$100k). This trend is not restricted to the USA only.
Why Don’t You Feel Poorer Yet? or “Right NOW”.
Financial institutions, especially banks, are eager to ensure that consumers keep spending. This constant flow of spending keeps the economy moving and helps stave off a recession.
We work to live — counting pennies for this month or the next — rather than thinking 10 years ahead.
Banks Proactively Use Subtle Creativity to Make Our Lives Better in the Short Term
1. Lengthen Housing Installment Term
In the 1990s, it was common to have a 20–25 year housing installment term. Today, 2025, 35 years or even longer, has become the new normal.
This change will make you feel housing is equally affordable compared to 30 years ago, as the monthly installment cost is the same.
However, a $125,000 house will cost you $250,000 at the end of the installment. A $400,000 house today will cost you $800,000 at the end of the installment.
Since household incomes have not tripled in the past 30 years, a consumer buying a house today will be around $550,000 poorer compared to someone who bought a house 30 years ago.
2. Lengthen the Installment Terms for Smaller Budget Items
At one point in time, installments for smartphones, fridges, TVs, and countless other products quietly became the norm.
What’s more, the installment terms that were once manageable in one year have stretched into five years or even longer, turning short-term purchases into long-term financial commitments.
3. De-cash effort = e-Wallet, PayWave
In the past, you would keep $1,000 in cash in your wallet for your whole month’s spending budget. Finishing this budget = handbrake on spending.
With e-wallets and PayWave, spending tracking is significantly more challenging now.
4. One-click Microfinancing & BuyNowPayLater (BNPL)
Both of these do the same thing: spend future money easily without complex bank credibility checks.
5. Subscription for Life
Games are no longer sold as one-off purchases. Many games now include mechanics designed to encourage ongoing spending, even after you’ve paid $100 for the base game. Game publishers are also pushing for monthly subscription passes to create a more predictable income stream.
This trend isn’t limited to the gaming industry — many new services and apps across various sectors are adopting the same approach. At some point, you might wonder: Why am I constantly paying them every month?
Implications
You will notice one thing in common — a small budget (less than $30 per month) and a long-term commitment.
This is meant to be a psychotic illusion to trick your mind. Let’s use clothing for our calculation example. Your monthly clothing budget is $200, and the average clothing cost is $100. With BNPL, you only need to pay 25% of the cost upfront and split it over 6 weeks.
DO NOT fall into the trap of feeling you are 4 times richer now and end up buying 4x of clothing or clothing that are above the budget range.
The spending stacks up fast. If you end up buying 8 clothing items, you will be spending $800 instead of the budgeted $200.
Each missed payment will result in a penalty fee of up to $10.
Remember — Your income is finite
Recommendations
In today’s world, it’s nearly impossible to completely avoid using credit facilities. House & car are two expensive items that will require an installment plan to afford.
Train your mindset with a few rules:
- Have a budget in mind for each spending category
- Before committing, remind yourself — if you cannot pay one-off = you cannot afford
- Limit to TWO active installment plans at a point in time. (This excludes house and car)
SCARY Math Equation to convince you:
This is not perfect, but a snapshot scenario setup:
- Average US household income 2023 = $80,610 ($64,488 after tax)
- Assume you are married and work from 20 to 65 years old with this household income
- Annual savingsAnnual savings (including investments) are assumed to be 4% ($3,224 per year)
- Investment Return: 5% annually
- Monthly expenses after retirement = $2,600 (2.5% inflation per year) (House property tax, maintenance, utilities $600 + Transportation $550 + Food $835 + Medicare/supplement $300 + Entertainment/other $302)
Monthly expenses after retirement assume you have a paid off house and car.
House and car values are not fixed here. At $80,610 annual income, an affordable house pricing range is around $200,000 to $280,000, which may be difficult to find today.
At age 65, your portfolio looks like this:
- Retirement Savings & Investments Value: $497,000
- Annual investment return: 5% (compounded annually)
- Annual withdrawal: $31,200 ($2,600 x 12) + 2.5% yearly inflation
Your Savings may last til 87–90 years old with passive investment returns. Without investment & pure saving, your savings of $128,960 may last till you are 70 years old only.
Start SAVINGS & INVESTMENTS… now…
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