In pursuit of the perfect Insta-look, teenagers are racking up debts. Credit: Getty/Images

June 10, 2020   6 mins

If you want to find out what Generation Z is thinking, look at what’s trending on TikTok. One meme seen millions of times during lockdown has been the #GoHard video, featuring a comedic lip-syncing sketch to the US rapper Kreayshawn’s lyrics: “I’d really like to do that but I don’t have any f***ing money”. The meme reflects the frustrations of wanting to do something and then discovering a genius way to do it without needing to pay. Several of them feature ‘buy now, pay later’ payment app Klarna as the ‘solution’.

Any company would bend over backwards for such authentic, fun — and free — advertising; it reflects the Swedish finance firm Klarna’s growing Gen Z-centred customer base. Klarna has been operating in the UK since 2017 and has now linked up with more than 4,500 major retailers from H&M to J.D. Sports. This and other similar apps such as PayPal Credit, Clearpay, and Laybuy enable online customers to either delay or divide the payment across multiple weeks — without incurring interest.

These apps have been godsends for online shoppers during the pandemic because of the way they enable the consumer to purchase several items, try them and send unwanted ones back before they have officially paid for them. Shoppers are not caught up in the inconvenience of delayed reimbursement from retailers. It enables consumers to literally ‘try before they buy’ even when the shops are all shut.

One TikTok meme sees parcel after parcel pile up on a bed with the tag: “Klarna getting me through lockdown one ASOS package at a time.” This trend is real. The price comparison site found that 23% of Gen Z have turned to ‘buy now, pay later’ services during lockdown. While many of us are feeling rather smug about all the savings we are making during this enforced period of restrictive spending, some are experiencing the opposite: online spending sprees funded through delayed payment apps mean that they risk emerging out of lockdown with significant amounts of debt.

“Keep thinking I’m saving money in lockdown and then I remember my FAT klarna bill” tweets one customer. For a large proportion of this generation, whose status emanates from an ever-evolving visual identity through social media, lockdown has been a case of ‘you can’t change your location but you can change your clothes’. With Klarna the default payment option at the checkout on some sites, it’s easy to see why it is so alluring.

As a convenient, flexible alternative to store and credit cards, it appears to be a wholly benign form of debt. Problems can arise, however, if you miss a payment (which with bi-weekly instead of the usual monthly payments is all too easy). Klarna itself has estimated that consumers spend on average 55% more when they are given the option of delaying or paying over several weeks (without admitting that this may be money customers do not have). Email and text reminders are sent, but the account will be sent to a debt collection agency when customers fail to act. Klarna has said that it has clear T&Cs, a strict vetting process and responsive customer service but an investigation by The Daily Telegraph found that 30,000 customers have already had their credit damaged because of missed payments.

As debt services go, it would be wrong to put them in the same class as Wonga or BrightHouse (which, incidentally, folded during lockdown) but we are right to question their corporate responsibility when this service is so quick, easy and marketed chiefly at the young. With its millennial pink logo and its focus on social media influencers such as Love Island contestants, Klarna has successfully tapped into a tricky market that can often allude major retailers. Its recent campaign “Shop like a Queen” was a deliberate appeal to the LGBTQI community, sponsoring the former Ru Paul’s US Drag Race stars Katya Zamolodchikova and Trixie Mattel’s YouTube show UNHhhh.

But a generation that has had a smartphone in their palm since their early teens is wary of crude endorsements. One US viewer complained on Reddit that he was ‘disappointed’ to see UNHhhh “turn into an extended commercial for [a] credit scheme”. This generation, which grew up in the wake of the 2008 financial crash, also takes a sceptical view of investments, the stock market and established money lenders. According to the consultancy firm Cassandra, only 34% of Gen Z trust banks.

Gen Z are wired differently to millennials when it comes to consumption, debt and saving. Whereas millennials grew up in the boom years, Gen Z’s childhood (when your attitudes towards money are formulated) was defined by the crash, followed by austerity and sluggish recovery in the wake of the Brexit referendum. They watched their parents struggle and will now themselves experience the Corona Crash. They won’t able to rely on the bank of Mum and Dad in the same way that a significant number of millennials did.

They also grew up during the fintech revolution, during which automated payments and cashless transactions became the new normal, and the weight of coins in your pocket was an alien sensation. Add to that the era of fast-fashion, fast-consumption and you have a generation that is on the one hand much more prudent than millennials in valuing money, but also much more vulnerable when it comes to spending it.

The combination of tech and tough times has made them more resourceful and more entrepreneurial — a number generate their own money from a younger age. They are also savvy shoppers to whom price comparison is second nature, while their ethical credentials and fashion-conscious aesthetic has triggered a revolution in the second-hand clothes market which rivals that of fast-fashion. Depop, a buying and selling app, has experienced a 90% increase in traffic since 1 April.

There are signs that they are more inclined to save than millennials too. When HSBC ran a survey asking Gen Z and millennials what they would do with £1,000 cash, 72% of Gen Z (compared with 55% of millennials) said they would put it into a savings account. The challenger bank Monzo, an app-only bank whose card is now a staple in every Gen Z wallet, catered for the new banking priorities of young people post-Crash who wanted greater control over their finances through its spending notifications and saving pot features. It also recently signed a deal with the saving app Emma, which it plans to launch for those as young as 11.

Generation Z may see the benefits of saving, but they also have a more relaxed attitude towards spending and debt. Student loans have normalised debt for the young but not given them the skills to manage it. Debt, of any kind, has been made to feel inconsequential. As one commented on TikTok responding to a #GoHard Klarna video: “I have a debt collection agency after me for a £15 ASOS order” — complete with a laughing emoji. The social shame of living on the never-never, common up until the 1980s, is not something that bothers this generation.

Nor perhaps does the prospect of insolvency. Bankruptcy claims among the young have increased tenfold in three years: under-25s now account for 6.5% of all cases, according to the accountancy firm RSM. One debt advice company estimated that this demographic represented 14% of all clients in 2018, with an average debt of £6,000. A study found that 18% of 18-24-year-olds use their credit card for bills and essentials.

The success of these apps also lies in the fact that Generation Z, more than any other generation, has been conditioned to the ‘one-click’ transaction. Apps such as Klarna do not just encourage the “I want it now” urge but also normalise the frictionless buying experience. This was pioneered by Amazon and Apple but in the case of Klarna, is financed through debt.

The move to a cashless society has meant that all ages have experienced a growing detachment and responsibility from the transaction — the psychological difference between a couple of clicks online and physically handing over cash. This becomes problematic when it is a debt-based transaction by someone young, financially vulnerable, used to one-click credit and with an easy attitude towards debt. Parents have been talking to their kids about the perilous nature of social interactions online; it could be that they also need to start educating them on the perilous nature of financial transactions online too.

But beware lecturing the young on money. The days of delayed gratification are long gone for most of us. Generation Z are no more consumerist than their parents, and certainly more financially inventive, informed and resourceful than millennials. Some responsibility must lie with companies themselves in providing full transparency of terms, thorough checks on vulnerable customers and a genuine commitment to responsible debt control. The debt industry will always work out new methods to lure consumers and for the majority, debt is convenient and, if managed, perfectly sound financial behaviour. But we are facing a fierce financial headwind that has already disproportionately impacted the young.

One bruised Klarna customer on Reddit offered a solution: “Saving seems to be an act of resistance.” To Gen Z, a savvy, activist generation, recalibrating shrewd financial behaviour into a political act might just gain traction.

Eliza Filby is a speaker, writer & consultant specialising in the history of generations and the evolution of contemporary values.