Affirm: Immediate Gratification + Hiding The Pain of Paying Upfront

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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).

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  1. Steve Kohn says

    You’re right, of course, but I’d ask why anyone buys jeans for even $200 when perfectly good ones, with brand names like Levis and Wrangler, can be had for $35 at the nearest Walmart.

    That’ll go further toward a healthy retirement fund, no?

    • Try some higher end jeans and you’ll see why. But not if you’ll be financing them 🙂

      • Or go to Ross, TJMaxx etc and you will get high end jeans for even less than $35 🙂
        I do agree with Jonathan’s message

    • I don’t own $200 jeans, but maybe they are awesome. 🙂 Anyhow, $200 jeans aren’t directly the point here. Chances are, most people spend $200 on something that they think is cool, but other people think is silly. It could be a nicer watch, mechanical keyboard, ceramic squirrels, etc.

      If you have the *cash* and are proceeding towards your other goals in a timely manner, I see nothing wrong with buying something you enjoy. However, if it is a consumer good, at least pay cash for it. That way you are clearly recognizing the cost of your fun thing, not just hiding it at $15 a month or whatever.

    • But the $200 ones are already pre-faded and pre-ripped, saving you a lot of trouble…

  2. “I liked seeing the number go up”

    couldnt agree more!
    I am such a math person, I get a weird pleasure from seeing numbers – especially networth – go up.
    On the other hand, seeing materialistic things like fancy clothes or cars does nothing for me.
    So I have a 14 year old car, 3 bed home & 300k+ in networth in a healthy/balanced/diversified portfolio not bad for someone who is 32.

    I consider myself lucky not because I have $ but because I dont crave material things and so its easier for me to save. I can imagine the saving pain for people who are naturally wired to be impulsive spenders and I am lucky to not have to go through with that. I mean surely those people can kill their desire to overspend and still save but its far easier to not have one in the 1st place

  3. Moe Howard says

    @GR, I am a 65 year old version of you (financially). I now can buy anything, but I don’t (except very nice wine). I tell the younger people, “Getting old sucks, being poor and old, really sucks”

  4. I don’t like to pay interest on top of purchasing price, especially if I can avoid it (except house). Affirm offers you that opportunity if for whatever reason you dont have a good credit score. Mine is fine. I am also privileged. Affirm helped others who may not be so fortunate. I honestly dont see why it’s evil.

    Yes, we want to put emphasis on financial freedom. And you criticized the example of jeans, and the $35 interest. When I bought my Google Pixel 2, Affirm could let me have it for 0% APR, basically same price but spread out to 18 months. I didnt take it, but it could be useful for someone in need.

    I appreciate this blog and Jonathan, so I want to share what I see with Affirm. I am not affiliated with Affirm. Just a different view point.

    • I think it’s mostly about the mindset, not the actual purchase. Most people buy some sort of luxury item. But this kind of debt masks the actual cost of the item. If it costs $100 or $1,000, then one should fork over the $100 or $1,000 and experience the associated “pain”, not hide it with monthly payments.

      • The problem with Credit Cards is not that you pay interest but that you usually PAY a higher APR than what you MAKE somewhere else in returns.

        It’s about juggling debts & assets in a smart way.
        For e.g.I can pay off my entire mortgage right now but why would I when the interest rate on it is 3.5%
        I ‘d rather have that same money invested somewhere else in a retirement account making a much higher return..

  5. The graphic is missing one more price tag: $196 – Using 2% cash back credit card, (Balance paid in full each month)

  6. 100% agree. Then I must say that #1, those who agree with you on the premise of this article already agreed to you. From my personal experience, you convinced no one who didn’t believe or wanted to have the instant gratification no matter what. #2, for some people the thrive in the society, hence the differentiation of income, status, and other things, we must have a large base of suckers who didn’t believe/practice delayed gratification. The recent market turmoil is just one example, There are a lot of money changing hands. Forget about holding for the long run, it’s panicky time.

    The balance seems in the need to keep the suckers alive and not get too many of them. When that happens, a revolution will start and the savers will be ran over by the revolutionaries.

  7. Like many readers I of course appreciate the opportunity to feel smug about my ability to delay gratification. What most intrigued me though is your statement that you “used to” check your net worth all the time. When did you stop doing that, and what would you say was the catalyst? Getting to a comfortable enough point that it all started being gravy? Or was it a conscious decision on your part to be less obsessed, or maybe a (perhaps wise) shift in focus elsewhere?

    • Interesting question. This isn’t the complete answer, but part of it is the fact that my net worth is mostly dependent on what happens in the stock and bond markets. When my net worth was lower, then I could move it a lot with my income savings. If my wife and I both maxed out 401k and IRA, that’s nearly $40,000 in savings.

      Ignoring the daily stock market gyrations and just collecting dividends and interest is primarily how I plan to fund my retirement, so that also means ignoring my net worth for the most part. I still get to check 4 times a year!

      • Thanks, that makes a lot of sense — contributions start to feel nearly meaningless to a substantial investment balance, so the motivation to save aggressively is less significant at that point. And dividends and interest are much more reliable income sources than appreciation, and are relatively indifferent to even fairly major market fluctuations (not that dividends can’t be cut or reduced in times of crisis, but collectively they seem to be surprisingly resilient).

        Obviously a dividend/interest-focused approach requires a much bigger investment balance to provide the same income (assuming one doesn’t overprioritize weak high-yield assets, which I know you’re not doing) and is likely overkill, but its advantages are tremendous.

        Still, I’m impressed that someone as focused on finance as you are has been able to pare down to quarterly checkups. Well done.

    • I think they say the best returns in the market are for people that forget they have an account and those that are 6 feet under.

      Meaning that if you are looking at your balances and/or profit/loss frequently you are more likely to fiddle with your investments in a detrimental way. By setting a course and sticking to it long term, you can minimize the emotions of a short-term 1000 pt market correction, instead of selling into the fear.

      • I believe that is accurate enough. Nearly everyone only makes things worse with very active trading, and my own investment philosophy is quite passive.

        However the context of frequent checking in this case is more in the motivating-you-to-save-and-invest sense, because you can see the progress and because it serves as a regular reminder. I’ve tended to profit from the same phenomenon, and haven’t been prone to panic selling or overactive trading, so it hasn’t been an issue for me.

        I think a lot of people would benefit from scrutinizing their finances a little more, especially until good habits are formed. I also think it’s possible to be more obsessed with it than is healthy. I was curious what Jonathan’s take was on why his own tendency to check on a daily basis had apparently been curtailed, though your point is also a good reminder about the value of not paying too much attention to the markets if you’re a long term investor.

  8. All about mindset. As an adult one should be able to control the need for instant gratification. Don’t understand how a grown up throws a temper tantrum over nothings with the I want it and must have it now. Take a look at the latte factor and you will see how the small daily purchases negatively impact our savings. I have no connection to the author whatsoever, but I believe he is spot on.

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