Buy now, pay later: A growing financial stressor

A single tap, a purchase made, a payment deferred: As AI algorithms predict consumers’ desires and new frictionless payment methods dismantle the traditional pain of paying, cognitive psychologists are stepping in to reveal how these converging technologies are rewiring financial decision-making and exacerbating debt-related mental health concerns.

This work comes at a precarious time. Wearied by years of inflation, stagnant income, and elevated personal debt, many Americans believe their finances will worsen in 2026. A 2025 Bankrate survey found that pessimism about personal finances is at the highest level since 2018, with price increases primarily to blame. And a Gallup survey published in April 2025 found similar attitudes, with nearly 30% of Americans reporting that inflation is the most important financial problem facing their family today, compared with only 3% in 2021.

As a result, debt has shifted from a stopgap to a way of life for many people, with paying down debt the most commonly cited goal in the Bankrate survey. Yet this objective can retreat to the background as consumers struggle with the high cost of living combined with a steady stream of hyperpersonalized online ads that offer new, streamlined payment mechanisms. A prime example is “buy now, pay later” (BNPL) services, where a single click or tap lets shoppers purchase items from groceries to furniture by splitting up the payments into smaller, interest-free installments. Unlike previous generations of installment plans that required monthly payments for a year or longer as well as a credit check, now consumers gain instant approval at checkout and make fewer payments.

“Spending is easier when the pain of paying is minimized,” said cognitive and consumer psychologist Abigail Sussman, PhD, a professor of marketing at The University of Chicago Booth School of Business. “And since AI models are better and better at predicting the products we want, targeted ads can create a constant barrage of temptation.”

BNPL services such as Klarna, Afterpay, and Affirm typically allow consumers to divide purchases into four payments over 6 weeks. When users fail to pay, lenders charge late fees or block borrowers from new BNPL loans. If the debt hasn’t been paid for 60 to 90 days, the lender can sell the debt to a collection agency. While most BNPL loans have not appeared on credit reports, FICO—the most widely used credit scoring company—announced in 2025 that its new models will incorporate BNPL data about payment history and other information into an individual’s credit profile.

The popularity of BNPL has surged in the past several years, with more than half of Americans reporting that they have used these services in the past 12 months (Hudson, A., & Paustian, S., Numerator, Feb. 14, 2025opens in new window). Clothing and fashion was the top category for this type of financing, followed by electronics and gadgets and furniture and home décor. According to a 2025 survey by the online loan marketplace LendingTree, more than 40% of BNPL users said they paid late in the past year, and 33% saw BPNL as a bridge to their next paycheck. Unlike credit cards, BNPL schemes do not require an official approval process, and there is little federal oversight of these products.

While these loans can help with short-term budgeting for individuals who can make the payments on time, they can increase stress when users stack up multiple BNPL loans simultaneously and start missing payments. Researchers recently found that people with certain mental health conditions were more likely to use BNPL products, and unsecured debt—debt that is not backed by collateral—is correlated with worse mental health (Richardson, T., et al., Clinical Psychology Review, Vol. 33, No. 8, 2013opens in new window).

To better protect consumers, researchers are studying the psychological mechanisms that shape financial decision-making in the ecommerce environment and how to help people resist spending that may exacerbate financial stress. “When people are under economic strain, one of the challenges they face is that they have less room for error in financial decisions,” said Sussman. “Once they are in debt, a small error like missing a minimum payment can trigger penalties or additional interest payments that leave people without money for the things they need.”

After realizing how much they actually owed, 1 in 4 Americans say they’ve regretted using BNPL (Caporal, J., Motley Fool, Nov. 14, 2025opens in new window), and a new study is shedding light on why these plans are so tempting. “Presenting an installment amount rather than the full price lowers a consumer’s perception of the cost,” said Rhys Ashby, PhD, a professor in the department of management and marketing at Swinburne University of Technology in Australia. “This is due to the numerosity effect.”

In one of Ashby’s studies, participants shopped for a refrigerator online. People in the BNPL group saw the total price of $600 alongside the installment price of four payments of $150. The credit card group saw only the full price of $600. The BNPL participants perceived the refrigerator as less expensive and were more likely to buy it than the credit card group. In a second experiment, participants could choose cheap or expensive concert tickets. More people in the BNPL group opted for the expensive tickets (Journal of Retailing, Vol. 101, No. 1, 2025opens in new window).

“With these installment plans, people may not be fully internalizing the cost of a purchase when deciding whether to buy or how much to spend,” said Sussman. In comparison, “the pain of paying can help people make good financial decisions.”

Similarly, online BNPL shoppers may have less energy to evaluate the risks and benefits of making a purchase by the time they reach checkout. Processing information about details such as brand, size, and color can exact a high cognitive load, wearing the brain down and draining energy for making decisions (Mateja, A., et al., in Hernes, M., Hernes, M., et al. [Eds.], Emerging Challenges in Intelligent Management Information Systems, Springer-Verlag, 2024). By clicking on a BNPL plan, a shopper will likely also start receiving promotional offers or alerts about discounts tailored to their interests, based on previous purchases, which can further the cognitive load and risk of impulse buying.

These risks are compounded by another factor that increases the risk of impulse buying: The cognitive brakes that encourage shoppers to pause in a brick-and-mortar environment are largely absent online. Impulse buying—a sudden act of purchase with no preshopping intentions, low effort in decision-making, and a powerful emotional charge—is prevalent in the ecommerce industry (Journal of Behavioral Economics for Policy, Vol. 6, No. 1, 2022opens in new window). “Online, people are not bound by place and time,” said Marco Mandolfo, PhD, an assistant professor who studies consumer neuroscience at Polytechnic University of Milan in Italy. “Shoppers can buy from their couch late on a Friday night rather than exerting the effort to travel to stores to find what they want during open hours.” Ecommerce also tends to bring less social pressure than in-store shopping, where the presence of friends, family, or other consumers might create the perception of being judged for what or how much a shopper buys. Young adults appear to be more prone to impulse buying, research finds (Nyrhinen, J., et al., Computers in Human Behavior, Vol. 153, 2024opens in new window). “Some of their risk assessment functions are not fully developed, and they tend to have more drive toward immediate gratification,” said Mandolfo.

What’s perhaps not surprising is that people tend to underreport or justify their impulse purchases, said Mandolfo. His preliminary findings suggest that there are physiological signs that indicate someone is engaging in online impulse buying, including increased sweat gland activity, a slower blink rate, and distinct patterns of brain activity in the cerebral cortex. Self-reports of impulse buying are not as accurate as the self-reports combined with the physiological markers.

Researchers are most concerned about consumers who start to make a habit of using BNPL. “Financial stability and mental health are intertwined,” said Catherine Ettman, PhD, an assistant professor at the Johns Hopkins Bloomberg School of Public Health. “People experiencing poor mental health may have lived experiences that shape their economic choices and vice versa. People under financial stress are more likely to have poor mental health.” In a study of more than 2,000 U.S. adults, her team found that people reporting signs of depression and anxiety were almost twice as likely to have used BNPL plans compared with those who did not report these symptoms. Participants with symptoms of post-traumatic stress disorder were at even higher risk of using BNPL (JAMA Health Forum, Vol. 6, No. 12, 2025opens in new window).

Ettman hopes that the findings will build momentum to strengthen consumer awareness about the benefits and risks of using products such as BNPL. There are signs that policymakers are eager to increase protections, with attorneys general from California, Connecticut, Colorado, Illinois, Minnesota, North Carolina, and Wisconsin recently launching a joint inquiry into the six largest BNPL providers (McCorvey, J. J., Bloomberg, Dec. 1, 2025opens in new window). The inquiry is exploring whether consumers receive adequate protections compared with traditional credit products.

Researchers are also worried that millennials and Gen Z consumers—who were more than twice as likelyopens in new window to make late payments for BNPL than other age groups in a recent survey—may unknowingly increase their risk of accruing a level of debt that leads to social exclusion (Caporal, J., Motley Fool, Nov. 14, 2025opens in new window).

In a small, qualitative study of people ages 18 to 25 who were over-indebted (their debt had been sold to a collection agency), researchers found that the participants experienced significant limitations in key areas for transitioning to adulthood (Eriksson, E., & Davidsson, T, Journal of Youth Studies, 2025opens in new window). In the housing market, many had struggled to find landlords who would rent to them or struggled to secure loans for a mortgage to buy a home. Some had abandoned their ambitions to go to college because they were fearful of taking on new loans that could increase their debt. Others were hesitant to apply for new jobs because they were worried about making changes that could introduce risks to their reliable source of income. Many did not have the funds to participate in social events with friends and felt shame about their debt, so they withdrew from activities and felt more isolated.

Many of the participants also reported high levels of stress and anxiety, and more than half had suicidal ideation. The debt also increased tension between partners. “Dreams about having kids became a strain for some because they couldn’t invest in a common future,” said Erik Eriksson, one of the study’s authors and an associate professor in the school of social work at Lund University in Sweden. His team also discovered that in most cases, over-indebtedness was not the result of overconsumption. Instead, participants were accumulating debt to pay for rent, food, clothes, and other necessities.

Heightened financial anxiety is also emerging in the clinical setting as health service psychologists work with patients. “I’ve been a psychologist for 40 years, and I have never seen so many people feeling paralyzed with stress and fear related to finances,” said Mary Gresham, PhD, a financial psychologist in Atlanta. “The cost of living is becoming unaffordable, debt is increasing, the job market is shaky, and there are unsettling changes to federal financial institutions.”

Although money can be viewed as a taboo topic for therapy, Gresham said it is critical for psychologists to start asking patients about this topic at the beginning of therapy. “Often what I see is that money is harder to talk about than sex,” she said. She starts by asking if patients feel comfortable talking about their relationship with money. If they are open to discussing the topic, she guides them to consider their values around money, their emotional connection to money, how they spend their money—and whether their spending behavior matches their values.

“Many couples do not talk about money unless they are having a fight about it,” she said. “I help them team together to explore how they are spending and whether this fits with their view of partnership.”

Encouraging people to accurately forecast monthly expenses is another important strategy for reducing financial anxiety, though research suggests that people usually underpredict future spending. “Our studies have found that people are pretty good at predicting standard expenses each month, but there are often atypical expenses each month, too,” said Sussman (Journal of Marketing Research, Vol. 59, No. 2, 2021opens in new window). “This can be Halloween costumes and decorations one month or the cost of an unexpected car repair the next month.” She encourages individuals to add a buffer each month for atypical expenses.

Psychologists are also studying how to help more people save money. One finding leverages the numerosity effect that BNPL schemes are using—but also in a way that helps people squirrel away savings rather than accrue debt. In one study, participants were asked if they wanted to save $5 per day or $150 per month. The people in the $5 per day group were 4 times more likely to sign up for the savings plan. Framing the savings in smaller amounts also reduced the participation gap between lower- and higher-income consumers (Marketing Science, Vol. 39, No. 6, 2020opens in new window).

“When people think about saving $5 a day, they can easily call to mind a number of things they could give up to reduce their spending, such as one coffee per day,” said Hal Hershfield, PhD, one of the study authors and a professor of marketing and behavioral decision-making at the University of California, Los Angeles. “But there are fewer things that come to mind that cost $150.”

Hershfield is also using AI to explore how to increase willingness to save for the future. A common barrier to putting aside money is people’s difficulty empathizing with the economic needs of their future selves. In a recent study, Hershfield used an aging filter that showed people in one group an image of themselves in 20 years. The tool increased the percentage of people who opted to save for retirement in a recurring deposit plan as well as the amount they wanted to save (Behavioral Science & Policy, Vol. 9, No. 1, 2023opens in new window). “A vivid visual example helps people feel like they know this future self and want to save for them,” Hershfield said. “It doesn’t mean people have to stop spending money now—just spend differently so they have more things they can do in the future.”