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Buy Now Pay Later; that enticing checkout service that allows you to have your stuff ASAP but pay for it later. For those who “wanna cop some new gear but can’t wait until payday”, as JD Sports puts it. It's the financial equivalent of having your cake and eating it, right? Well not quite. Whilst these increasingly popular services can be useful for some, they can also be an unhelpful gateway into over-spending and problem debt. Not so good. So, if you've found yourself thinking it's time for a change, here's how to exit that toxic relationship and start fresh:

Acceptance    

First off, recognise that the spending wasn't healthy. Be honest with yourself: are you spending more than you would if BNPL wasn't available? Are you feeling stressed about money? Are you unsure of how much you've spent? If the answer to any of these questions is yes, now's the time for a new beginning.

Go cold turkey

‍Yes, it'll suck for a while, especially if you're used to those late night shopping mood boosts. But the pay off is freedom from financial stress, which will feel way better than that new bikini ever could.

Block and delete

‍You know the drill: to resist temptation, cut off communication. Unsubscribe from promo emails and unfollow the most tempting accounts on social. If there's a website you find particularly hard to stay away from, install a plug-in like Icebox to stop you in your tracks. Just like with a real ex, if you don't have their number, you can't text them.‍

Recognise your emotions

‍Now it's time to figure out why you were spending more than you wanted to in the first place. Shopping can be emotional, so try to figure out what those online purchases were really about. Were you bored? Longing for a change? Dealing with an actual break up? When you identify what's really going on for you, it'll be easier to replace the shopping with something more meaningful.

Find a rebound

‍But in a healthy way. It might be Ben and Jerry’s for a bit but there are lots of ways to do self-care that are totally free. When you're feeling tempted, put your phone down and take a minute. Maybe it's as simple as FaceTiming your mum or going for a run. Figure out what gives you a similar boost. 

Get closure

Alright, now that you've done all that work, make a plan to put unhealthy habits in the past. If you've recently purchased stuff that you can still return, do that. Then make a realistic plan to pay off your remaining balance ASAP. Make a note of when payments are due by putting a reminder in your calendar, so you don’t accidentally miss any.

Set boundaries

‍Remember, Boohoo doesn't give a **** about your budget. You're the only one who can give your money purpose and decide how to spend it. Try making a budget. It's a great way to feel confident about what you do with your money, while still allowing you to buy the nice things you want.

A caveat

Credit products aren't all bad as long as they're used responsibly. For bigger ticket items that are a necessity for your work or life (think: laptop, car) it can be a good option as it allows you to split the cost into manageable amounts. It's always preferable to pay outright than take on debt, so do that if you can. If you do decide to go for BNPL, make sure you can keep up with the payments and that you make them on time. Also, check the fine print for hidden fees and interest that might get you in trouble down the road.

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Alice Tapper is a financial campaigner. She launched the #regulateBuyNowPayLater in June which has since led to investigations by both the FCA and ASA. 

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As a business, we can see the effects that the cultural climate and global events are having on people's financial situations and spending habits.  

When we conducted research for our Advice Gap Report earlier this year, we learned the nation’s finances were in a precarious position before the prolonged effects of COVID. With the change in millions of people's financial situations, an increase in online shopping habits due to lockdown, and Christmas just around the corner, there’s a serious worry that more people than ever will be turning to Buy Now Pay Later (BNPL) services like Klarna, Clearpay and Afterpay.

We believe consumers are being continuously lured into gift-wrapped debt traps as a result of a lack of regulation around these increasingly popular services, that are celebrated by brands online, and irresponsibly encouraged by influencers on social media.

Our co-founder, Anthony Morrow, launched OpenMoney to change the financial service industry for the better by offering the accessible, affordable advice and direction consumers need to move forward with their finances, and to empower consumers to make more informed decisions about services just like BNPL.

As a result of always putting the consumer first and being pretty vocal about his views, Anthony was awarded the Consumer Champion of the Year Award at the 2020 MoneyAge Awards. We caught up with him for a virtual chat about his views on consumer debt and Buy Now Pay Later schemes, his personal mission, and how he sees us here at OpenMoney making a difference.

OpenMoney: Congratulations on your big win, we’re all really proud of you! What does winning this award mean to you?
‍Anthony Morrow: I think, as with most awards, it’s always great to have your work or efforts recognised but they aren’t the reason that we do what we do at OpenMoney. There are so many great businesses and people out there trying to improve outcomes for customers, it’s simply flattering to be considered one of them.

OM: Our research has shown that 40% of people asked, are worried about how they’ll afford Christmas this year, and over 50% feel pressured to spend more because it’s been a tough year. Do you think schemes such as BNPL are taking advantage of the situation?
AM: I’m not a fan of BNPL because I think they are focused on the worst parts of customer manipulation – material aspiration and fear of missing out. These are powerful devices to use when convincing people to spend money they don’t have. As we’ve seen over last couple of decades, and the rise in short-term debt, it causes lots of problems for people. These schemes were bad news before the pandemic and now they just feel dangerously inappropriate.  

‍OM:  How important is education when it comes to avoiding these services and money issues in general?
AM: Whilst greater understanding and education would be brilliant, sadly we are at a place where financial literacy is at really low levels. Solving this is not going to happen overnight and will take generations to put right. There are always plenty of words saying that personal finance should feature on the school curriculum. What would be much better, and far more easily achieved, is if those industries could behave in a way that reflected their concerns around literacy levels!

There are too many examples where products and services are developed where the customer takes full responsibility for making informed choices which, everyone knows, is a nonsense state of affairs. This is just companies passing risk to the customer, who they acknowledge have low levels of financial understanding, whilst retaining the profit.

Remember that the debt industry will spend billions of pounds a year advertising their products in very sophisticated ways, with increasingly granular data; it is no contest really.

OM: How do you see OpenMoney making a difference?
AM: OpenMoney was set up specifically to address this problem, and that people with little money have few options on where to go if they want advice on what to do with their money. We think financial advice can not only provide better future outcomes for customers but more importantly, prevent bad decisions being made. These bad decisions can lead to terrible outcomes that can affect a person's life for years. If we can help more people avoid these problems, that would be a big success for us.

OM: What would be your one key piece of advice to the 75% of people we asked, who will be using credit cards, store cards and BNPL schemes to pay for Christmas?
AM: It’s so important to be very clear how any debt you take on is going to be paid, no matter how tempting it is to get that item you really want after what has been a shocking year. Understand how much you’re really paying for the item as well, because interest can mean spending far more than you think especially on short-term loans and credit cards.

Our advice would always be to save up and buy that item without using debt. Not only will it save you money that you can put towards something else, but you will feel much better having actually done it. Set yourself goals – small or large – and stick to them. Bask in that smug feeling that you’ve achieved your goals and that you did so without the worry of owing someone money. ‍

OM: And finally… do you have a few words for BNPL schemes? (Words that we can publish please!)
AM: Don’t follow the paths of credit card companies, peer-to-peer or payday lenders, and chase inappropriate customers for the sake of growth targets. All of these industries had genuine positive use cases for the few, but ended up targeting the many which has not got themselves into trouble, but millions of customers as well. We have record levels of personal debt in this country heading into an unprecedented period of uncertainty – don’t make people's lives worse by tempting them with expensive and targeted campaigns.

We're launching our #YouOnlyPayOnce (#YOPO) campaign to tackle Buy Now Pay Later schemes. We want to help protect consumers and empower them to make more informed decisions about what's being described as ‘gateway debt'.

You can read more on our #YOPO campaign here. Keep your eyes peeled for us taking on the services that we feel play an instrumental part in the consumer debt problem in the UK.

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Do you know what type of pension you have? You’re not alone if not! Our 2020 Advice Gap Report revealed that almost a quarter (23%) of British adults are unaware of the type of pension that their employers are contributing to on their behalf [1]. It’s never too early (or late!) to take stock of your current pensions and plans for retirement.  A good place to start would be to track down the pensions you have in your name, which you can read all about in our blog, here.

Once you have the full picture of where your money is, you may be thinking about consolidating your various pension pots into one, you can read more about the benefits of consolidation here. When you get to this point, it is so important to seek regulated financial advice. There are lots of things you wouldn’t do without the guidance of an expert, for example fixing your car, so why should transferring your pension be any different?

Although it might be a good idea to consolidate your different pots into one place in order to keep track of them, provide better investment options, and potentially save on fees, it can be a complex and often irreversible decision. By taking advice, you can ensure you understand the implications of all the choices available and be confident that you’re making the right decision for you.

Transferring to another provider without advice could leave you at risk of losing potentially lucrative pension benefits with a current provider or switching to a product with higher fees. We take all of these factors into consideration when advising customers on their next steps for their pension. We actually advise a quarter of our customers going through our review process not to transfer! This is usually due to their existing pension offering valuable benefits, or that their current provider is already meeting their needs and providing good value for money.

Our Advice Gap Report also found that one in five people have more than one type of pension, which could include all types of pension such as a personal pension, final salary pension, a defined contribution work pension etc. This is totally normal as people can have a number of jobs through their working life, and may build up several pension pots from different employers. The current upheaval in the jobs market is likely to fuel this trend, so taking control of your retirement planning, to ensure you have enough money later in life, is more important than ever.

At OpenMoney, we offer a free pension transfer review, where we will check whether transferring is the best choice for you. We have been able to save customers over £30,000 in fees over the remaining life of their pensions by switching, and they also benefitted from the option to link all of their other finances via our app to get a complete picture of their financial situation. This shows just how important it is to get advice! There’s no obligation to act on  our advice, it is your pension, your decision and you are in control.

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Our recent Advice Gap report uncovered that 38% of people have never invested, with 17% of those stating that they don’t invest as they wouldn’t know where to start.  

The world of investing can seem complex at the beginning, and making the right decisions for you and your money can be difficult. Smartphones and computers have made investing accessible through the click of a button, making it easier than ever to invest. This blog will run through some of the most asked questions for beginner investors and set you off on the right path.

What is investing and how does it work?

The term ‘investing’ simply means to put money away into an asset for a period of time, hoping that the value of that asset increases over time so that you could make a profit once sold in the future. An asset is a term used by investors to describe anything of value or resource which can help make them money in the long or short term. It’s worth mentioning that the value of your assets can fall as well as rise.

To start investing you first first need to purchase a financial product known as an ‘investment’. There are many types of investments such as stocks (buying a portion of a business), property (investing in property to let), bonds (government loans) and exchange trade funds (investment funds that track the performance of an index i.e. FTSE100 etc), the list goes on!  

At OpenMoney, we provide you with a diversified investment portfolio which means that you would be investing in cash, properties, bonds and equities all at once. Our investment portfolio changes depending on the level of risk you are willing to take.

Why should I start investing?

Investing is a great way to help you achieve your financial goals, no matter what they may be. Whether that’s retiring early, saving for a wedding or even if you just wanted some extra cash in your pocket in the future. You should always have a goal in mind when investing to help keep you motivated throughout the process.  

Another great reason to start investing is compound interest. Compound interest helps make your money grow by adding to the interest you have already earned from investing, back into the market. The interest earned ‘compounds’ over time and adds to the value of your investments. It’s a great way to help reach your financial goals quicker.  

Here’s an example of compound interest in action:

If you were to invest £10,000 today for a period of 10 years with an annual return on investment of 5% that compounded every month, the total value after 10 years would be £16,470. Even after one year, you can see the impact of compound interest as the value would be £10,511, even though the returns were 5% (£500). Compound interest can heavily impact the value of your investments, especially when investing over a long time.

An annual return of investment (ROI) is the measure of how much your investment has increased each year. This will be a percentage based on your initial investment minus the final value and then multiplying it by 100. This is also known as ROI.

Does investing require a lot of money?

Absolutely not! Traditionally investing has been seen as something only the rich can do. However, the reality of investing now is that it doesn’t require you to have a lot of money in order to start. At OpenMoney, we allow you to invest from as little as £1 which is perfect for beginner investors who are just looking to dip their toe in the water.

Another helpful thing to remember is that most, if not all, investment companies charge a fee on your investments. The common type of charges you’ll see are:

Platform or management charge - Companies often charge for using their services. These fees are normally deducted from your investments.

Annual charges - This is what you will pay to a company on a yearly basis for having them manage your investments for you.  

Fund charges - Fund providers can deduct payment from either the profit of your investments or by taking it directly from your initial investment in order to use their service.

When weighing up where you’re going to invest, make sure you understand the total charges you’ll face for each company. Fees can make a big impact on your overall portfolio value.

Figuring out how much you’re going to pay can often be confusing, especially if you’re a beginner. At OpenMoney, we understand how confusing it can be, that’s why we’ll tell you your total charges in pounds and pence! Our low total fees of less than 0.5% annually mean that you’ll keep more of your money too. You can read more about our recent fee change here.

Is my money at risk when investing?

Whenever you’re investing, there will always be an element of risk involved. The value of an investment can rise as well as fall so it’s important to understand that you may receive less money than what you had initially invested, this can be due to the market fluctuations and crashes.  

We always recommend investing money that you don’t need to pay your living expenses and essential outgoings and we recommend you have a cash savings buffer in case of any life emergencies. This way, there’s less need for you to access the money you’re investing should you need it. Investing for a longer period allows you to ride the ups and downs assocaited with investing.

Always keep in mind that with any investment that you take, there will always be an element of risk associated with it no matter what you may be investing in.

Where should I invest as a beginner?

As we mentioned earlier, there are several ways to start investing and there are always new and exciting ways people can invest! Getting to grips with all the different types of investing may seem daunting, so one question you must ask yourself is do you want to be an active or passive investor?

Active investing is where you build your own portfolio, for example this may mean buying your own stocks and equities in companies or investing in property. Active investing can take up a lot of time as you’ll always need to be aware of market fluctuations and have your finger on the pulse in order to buy and sell successfully.  

On the other hand, passive investors pay an investment manager to handle their investments for them. This method saves a lot of time and portfolios are pre-built meaning they are often diversified and can be matched to your risk appetite. Passive investing is a great option for those who can’t dedicate the time to researching investment strategies.

Once you have decided on the best strategy for you, there are a few more things you’ll need to consider such as how much you want to invest, how often you will invest and how much risk you want to take. These should all be determined by your financial goals.

How long should I invest for?

With investing, there isn’t a set time in which you should hold your investments for, however, we do recommend keeping them for at least 5 years to smooth out the ups and downs. The duration of your investment should be dictated by your financial goals. For example, if you wish to retire at 55 and you are 35, you need to invest for at least 20 years.  

As with all investments, you should only invest if you are committed to putting your money away for a few years knowing that there’s potential to either take a loss or make a gain. It’s important that you do not use any money which you may need in the immediate future such as your emergency cash savings.

What’s the best way to get started?

Once you’ve decided upon your investment goals and where you would like to invest, the best way to get started is to start! You may want to try out your chosen platform with a smaller amount so that you’re confident enough to invest more in the long-term.

At OpenMoney, we help beginners as well as experienced investors by simplifying the whole process. By taking our free financial health check here, you can find out whether investing now is a good move for you based on a few simple questions. If you are ready to invest, we’ll recommend the right investment products for you based on your goals, attitude to risk and the duration of your investment. Even if you aren’t yet ready to invest, we can set you on the right path by helping you manage and save your money.

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The word “pension” refers to an age that many people consider light years away. Why bother saving for a pension when it’s so far down the road? But the importance of a pension is really simple – it’s designed to provide you with an income once you’ve stopped working. (I’m personall ydreaming about a luxury cruise.) Plus, pension money is protected and has great tax advantages. Read on…

How much pension do I need?

This answer varies for everyone and it depends how much you earn, how much you can afford to save, what age you want to retire, how much your employer contributes to your pension etc.

This government online calculator does a fabulous job of estimating what age you can retire and how much you would need to save in the meantime.The general advice from experts is always the same, however: save as much as you possibly can, and it’s never too early to start.

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Think you can survive on a state pension?

If you do not save, and instead rely on the government’s state pension, you will have to wait until you hit retirement age which is 66 as o fOctober 2020 (and projected to rise). You will get a maximum of £175.20 a week – that’s if your national insurance record shows that you’ve worked for 35 years. The state pension amount is certainly not to be sniffed at, and we’re lucky in this country to have state support at all, but it may not be enough to maintain a lifestyle you’ve enjoyed during your working life.So the more we save beforehand, the better.

Free money from your boss!

Second, if you are fortunate enough to have a workplace pension,it’s a great idea to make the most of it. A scheme called auto-enrollment kicked in eight years ago, gradually requiring employers of all sizes to open a workplace pension and contribute to it on behalf of their employees. You, as an employee, are automatically opted in but you can opt out if you want to.

In 2020, your employer contributes a minimum of 3% of your salary,and you pay 5%. But that 3% from your employer does not come out of your salary, it’s equivalent to 3% of your salary. It’s essentially free money from your employer.

Tax-free savings

They say taxes are one of the very few certainties in life, but pension holders get a great deal. You can save up to £40,000 a year, tax-free, in a pension product – this is called your “pension annual allowance”. And that amount is double what you can save in one or more ISAs per year. (Granted, not that many people have £40,000 to put aside every year – but it’s good to know the option is there.)

What if I’m self-employed and don’t have a workplace pension?

You can open a pension yourself! You won’t get the contributions from an employer, but you will receive the tax benefits.

It’s important to do your research before opening a pension (Citizens Advice has useful information on that). How much does it charge? How easy is it to contact the provider? What kind of funds will your money be invested in? You may also want to contact a financial adviser.

As a freelancer, I also know the difficulty of knowing how much I can afford to put in my pension as I don’t always know my income in advance – I just save as much as I can throughout the year, pay my tax bill and put the rest into my pension and ISA.

Your money is protected

I’ve heard plenty people say, “Pensions are doomed. Look at the economy! I’m going to invest in property instead.”

Unlike owning a home, a pension is actually protected by the government, similar to your savings in a bank account, your ISA, or your money in Premium Bonds. This is because the Financial Services Compensation Scheme protects 100% of your pension money if your pension provider fails, and up to 85% protection if your Self-Invested Personal Pension operator fails.

Can I take my money before I retire?

Compared to a savings account or an ISA, it’s much more difficult to get your cash back early from your pension pot – without being landed with a massive tax bill.

The earliest you are able to take out money is age 55, if you have a company or private pension, where a quarter of the pot can be taken tax-free, and the rest used as an income on which you pay income tax.

But generally speaking, just like any money you invest, your pension is supposed to be invested over the long term.  

Tip: Don’t ignore your pension documents

Most pension providers will send you quite a hefty pack of documents once a year, including your annual statement. It will show your projected income at retirement age, which depends on you continuing to earn and save the same amount consistently until retirement age – it is not based on what you have contributed so far!

The documents should also tell you what you’re invested in, the annual costs and any changes in the investments – as well as how they’ve performed recently. (I would generally not get too tied up on the performance side of things, as it’s designed for the very, very long term.)

Thankfully, a lot more pensions now allow you to check up on your account online, and it may be easier to do that than plough through the paper.

‍Can I switch pensions?

If you’re in a workplace scheme you may be able to switch providers and keep your benefits from your employer – this will usually depend on the size of the company you work for and what alternatives are available.

It’s easier to change if you’re self-employed. You will need to a) choose a new pension product and b) tell your old provider where you’re switching to, so that the two companies can work together to do the transfer. Some providers take their sweet time, others are quicker. Just make sure before switching that you will not be charged any exit fees, and will not lose any benefits, especially if the pension is more than 10 years old.

In all scenarios, think carefully about why you want to switch, and get financial advice if you’re unsure.

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Rachael Revesz is a freelance journalist and host of An Honest Account, a podcast about how money affects our lives. You can follow Rachael on Twitter, here.

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