Money Monday: The Side Effects of Inflation

Visiting the doctor may not be the most fun experience for most people. It can bring about worry, anxiety, and even fear. But, to provide medical relief from your complaint, they will regularly prescribe some medication. A frequently asked question by patients is, “What are the side effects of this medication?” I don’t know about you, but today’s financial complaint is inflation, and many individuals will be forced to take some economic medication to address their financial conditions. Some are medicating on bankruptcy while others a. The following are some of the side effects of inflation. As your financial therapist, I must warn you – don’t overdose!

By Now Pay Later (BNPL)

Let me begin by repeating a standard warning, “If it sounds too good to be true, it probably is!” According to a study by Accenture, Americans spent $20.8 billion through BNPL plans in 2020. Purchases through BNPL plans have increased a staggering 230% since 2020. While these plans were initially available for only online shoppers, they have now become mainstream and extended to in-store purchases.

Firstly, these plans are deceptive because customers believe they are getting free financing, but they are spread over four or more payments. Added to that idea is that approval for a BNPL plan is instantaneous, and there is barely any credit check! The risk to shoppers is late fees because most do not understand the terms of these arrangements since each provider has its own set of rules. Another risk is that these arrangements were initially not considered when evaluating credit scores. That’s now wishful thinking! These arrangements are currently used by the three main credit bureaus when determining your credit score. In short, these plans lack oversight and are unregulated.

BNPL plans generally fall into two categories predicated upon your purchase cost. If your item costs $1,500 or less, your plan will typically constitute four equal payments. For larger items exceeding $1,500, the lender could spread your payment plan over 48 months. The catch is that you will be charged interest which could escalate to as high as 30%, factoring in your credit history and profile.

With regards to this inflation side effect, let me leave you with some facts to contemplate. Layaway plans were used for large purchases in the past. But now, BNPL plans are becoming the norm thanks to inflation. Six out of ten BNPL plan users have regretted their purchase because the item was overpriced. According to Credit Karma, at least one-third of participants have missed at least one payment. Let’s see if this makes any sense. Inflation is over 9%, so you enter into a BNPL plan only to miss a payment and potentially pay up to 30% interest? Does this make sense? No!

Credit Card Balances

The Federal Reserve reported that credit card balances rose 8.1% in May. Inflation rose by 8.6% in the same month. These numbers reflect that more Americans are relying on using their credit cards to manage their everyday living expenses. One of the most significant contributors to increased credit card debt is gas prices. How much flexibility is there in your finances? If these factors are not disturbing, you should also note that credit availability is tightening, and it’s getting more expensive to obtain. All these are side effects of inflation. Don’t overdose!

WHAT’S UP!

Today’s what’s up is about back-to-school shopping. Sixteen states plan to suspend sales tax during their back-to-school shopping holidays scheduled for the first two weeks in August 2022. This year the sales tax-exempt items consist of clothes, shoes, school supplies, and computers in most states. For example, in Maryland, where the sales tax is 6%, the holiday will take effect from August 12-20, 2022. With inflation significantly impacting families, take advantage of every savings opportunity; if not for yourself, do it for a family in need or your grandchildren, nieces, and nephews. And that’s what’s up!

Ruthven R. Phillip, Esq., is a tax attorney, Stewardship and Philanthropy Ministry Assistant, and CEO of Give2Getrich, LLC. Give2Get Rich, LLC 2022. All Rights Reserved. Any distribution or reproduction of part or all of the contents in any form is prohibited.

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