With buy now, pay later, millennials are most likely to feel the brunt of a post-holiday 'financial hangover,' expert says

• Millennials and Gen Z may not be as cautious with their finances going into the holiday season, report says.
• Younger shoppers are opting for buy now, pay later payment plans for their holiday shopping.

As pandemic stresses continue to subside, shoppers are ready to do some holiday spending — even if that means taking a significant hit to their bank accounts.

A report from Creditcards.com shows that millennial shoppers are more willing to go into debt to this holiday season than any other generation. The findings come amid a particularly strained holiday season, as supply shortages and shipping delays limit the amount of time available to make major purchases and inflation raises the cost of goods and services across the retail market.

According to the report, 56% of millennials who celebrate the winter holidays are willing to go into the red while shopping for gifts. Additionally, 18% of surveyed millennials said they are likely to spend more this year than last year, compared to Gen Z and baby boomers, at 16% and 10%, respectively.

"Each generation has their own financial background and their own financial struggles," Ana Staples, a credit analyst and co-author of the report, told Insider. "It's kind of a trend with millennials, that they're willing to go into debt for things."

Staples said much of this behavior is a result of being "desensitized to feeling uncomfortable financially" as a result of experiencing two major economic recessions, an unsteady labor market, and high rates of student debt.

Some millennial shoppers are planning to resort to buy now, pay later (BNPL) services to ease the immediate burden of holiday shopping. Services like Klarna, Affirm, and Afterpay, which have all ramped up their marketing efforts ahead of the holidays, have become more popular with younger generations that often prefer to pay in installments and are more comfortable using payment alternatives.

While Staples said BNPL can be a good financial tool if used responsibly, she cautioned of its dangers. "Just like any kind of debt, it requires caution and a realistic repayment plan for the buyer to avoid unpleasant financial consequences."

And though 25 to 40-year-olds are more likely to accept instant gratification in the moment and pay for it later, they are also good at saving. According to the report, 44% of millennial respondents said they are likely to actively search for deals and coupons for holiday shopping. Some noted willingness to employ budgeting tactics, like putting a price limit on gift exchanges, making homemade gifts, and buying used items.

Meanwhile, one out of four millennials indicated they are not interested in looking for opportunities to save money this holiday season, and these costs can add up.

According to the survey, millennials are hypothetically willing to spend around $262 on spouses or significant others, and $326 per child. For a family of four — two millennial parents and two children under 18 — holiday gifts can creep up to more than $1,100.

Despite the possible pitfalls that younger spenders may face, Staples said it's possible to proceed with caution by engaging in "strategic splurging" that circumvents a "financial hangover" in the new year.

Determining whether a purchase is necessary at a given moment is key, she said, and having doubts is a sign that it should be delayed or skipped altogether. Setting up a holiday budget, continuing to look for deals, and comparing prices will all go a long way toward saving money, she added.

Those who decide to incur debt should do so with a 0% APR credit card to avoid interest and have more monthly payment flexibility, she said.

"I just really encourage being careful with your spending during this holiday season and having a good replacement plan, if you do end up going into debt," Staples said.