Archives for February 7, 2018

Here is an interesting longform Racked article about Affirm micro-loans. Now, instead of (gasp!) saving up for a few months before paying cash for those $200 jeans, you could have them today for $235. It’s basically credit card debt for people who previously couldn’t get approved for a credit card. Hurray for innovation.

Sure, it may be more transparent and convenient, but here’s the real reason why you’ll soon see it everywhere:

Affirm is not just meeting a demand, but creating one, encouraging shoppers to buy and spend more. Affirm claims an average 75 percent boost in order values across all its merchant partners. Affirm is clearly not just facilitating purchases that would have otherwise happened through other means of credit. Four retailers I spoke with reported significantly higher sales, and more frequent purchases, with Affirm customers.

Saving for retirement is a form of delayed gratification. You could buy buy $235 jeans today, $200 jeans after saving up a few month, or you could invest it and wait 20, 30, 40 years down the road and be able to afford housing, food, and medical care when you’re old. Even if you’re a crazed fanatic like me with a 50% savings rate, you might wait 10 to 15 years before actually being able to “spend” the money you put away.

How can we avoid debt when it means immediate gratification? No easy answers here, but looking back, I used to check my net worth all the time. It’s hard to call that a healthy habit, but then again it did provide a form of immediate pleasure from saving $200 instead of spending it. I liked seeing the number go up. Mentally, I also knew I could use that money as a cushion if I wanted to try a new career path. In that way, having more money in the bank meant more freedom now, not just later.

Added: Dave Ramsey is famous for helping people out of debt, and one of his main tips is to pay cash for everything. At a minimum, use a debit card. (You could even “Debitize” your credit card.) That way, you feel the appropriate pain of each purchase. When you put things on a credit card with the idea of paying “later”, you are hiding that pain. $20 a month feels a lot easier than $200 upfront. This is why Affirm customers end up buying more stuff than cash buyers (on top of paying interest).