Klarna = Anti Capitalism
OIJ (#44) Why the world’s most popular budgeting tool is a mathematical trap for your future
A colleague of mine recently went down a finance rabbit hole and emerged convinced he’d found a not-so-hidden gem: Klarna. He flagged it as a classic undervalued play and asked for my take before committing to a deeper dive.
Usually, when people ask for our opinion on Google, Tesla, Palantir, or the latest fad stock, we respond with a very elegant: “We don’t have a formed opinion.”
However, while we may not have a specific stance on the company’s financials, we have very strong feelings about Buy Now, Pay Later (BNPL).
To us, companies in this corner of the market are the closest thing to pure evil. Keep in mind, we’ve historically invested in vices like alcohol, casinos, weapon systems, defense components, etc., yet BNPL stands out as a far more predatory beast.
While traditional investing harnesses the power of growth, BNPL inverts compounding. It effectively taxes the future you to pay for a present that its users simply cannot afford, and, in the process, leaves EVERYONE worse off.
Let’s lay out our thoughts.
‘Ideal’ Capitalism
The bedrock of a functional capitalist system is compounding, but compounding doesn’t happen in a vacuum, as it requires a specific sequence of cooperation: deferred consumption, savings, and strategic investment.
Let’s look at a practical example. Suppose you’ve worked diligently for two years and managed to save $10,000. By setting that capital aside rather than spending it immediately, you are initiating the ‘engine’ that makes the entire economic system churn.
Transformation of Capital
When you move from a consumer to saver, your $10,000 takes on a new life. Whether you choose to:
Allocate to Index Funds: You are providing equity to hundreds of companies, allowing them to innovate, hire, and expand.
Deposit into a Fixed Account: You provide the liquidity that banks use to issue mortgages for new families or loans for small businesses.
Purchase Productive Assets: Buying equipment for your own business directly enhances your own output.
Acquire Real Estate: Even a primary residence, while not strictly ‘productive’ in the sense of a factory, represents a massive participation in the economy, supporting construction, insurance, and the credit markets.
Savings as Opportunity
In this cycle, your savings are someone else’s opportunity. In a healthy economy, your deferred gratification provides the fuel (capital) for someone else’s labor or innovation. This is the ultimate form of social cooperation.
As these investments bear fruit, they create a virtuous cycle of productivity:
For Society: It leads to better infrastructure, cheaper goods, and technological breakthroughs.
For Individuals: More importantly, it allows the saver to eventually leverage capital instead of time.
From Labor to Capital
This is the game changer in our society and what creates very healthy interdependence that provides us all with stability. Most people spend their lives trading 1:1 units of time for money.
Compounding flips that entirely.
By investing in productive assets, you are no longer the sole engine of your wealth; your past labor (stored as capital) begins to work on your behalf. You are essentially buying back your future time, ensuring that your later years are defined by the productivity of your assets rather than the limits of your physical endurance.
Consumerism
Our modern society is obsessed with the now. We are constantly nudged to consume (the more, the better) under the false premise that the timing of a purchase doesn’t matter as long as the transaction happens. This is, in the best case, a dangerous way to live.
Using every dollar for immediate consumption effectively kills compounding before it can start. However, the punishment for this behavior is heavily dictated by your stage in life.
Imagine you’ve just graduated and moved to a new city for a low-entry job in your 20s. You have minimal responsibilities, so spending 100% of your paycheck is often a reality. While not a good habit, it’s survivable… and perhaps even an acceptable trade-off if that job offers a high ceiling for future career growth.
If your rent, groceries, and phone bill eat up every cent, you still have the most valuable asset on your side: Time. I’ve been there myself; it’s a phase, not necessarily a terminal diagnosis.
The math changes drastically by your 50s. If you have a family and a mortgage but are still living paycheck-to-paycheck, you aren’t just stagnant…. you’re in a crisis. Not only does the window for compounding shrink, but your most vital resource is fading: your ability to exchange physical and mental labor for a paycheck. In your 50s, you are entering the “exit ramp” of your peak earning years. If you haven’t built a pool of capital to take over the heavy lifting, you’re left exposed.
On Debt
In our current landscape, we aren’t just pushed to consume; we’re pushed to finance everything. It’s important to remember that debt, in and of itself, is morally neutral. It’s a tool, neither good nor bad, whose value is determined by a simple mathematical premise: Productive Utility.
Debt is only ‘good’ when it’s applied to productive goods. For example, if I take out a loan at a 4% interest rate and deploy that capital into an asset with a 7% return, I am successfully leveraging my knowledge using someone else’s money. By definition, arbitrage.
It’s also worth noting the broader social contract at play here. Your debt is someone else’s investment. Even if your specific venture only breaks even or, in the positive, fails to hit its targets, society still wins. Why? Because that capital was put into motion, it paid for labor, materials, or innovation. It kept the gears of capitalism churning.
Buy Now Pay Later (BNPL)
By now, the picture should be clear. The fundamental issue with Buy Now, Pay Later (BNPL) is twofold:
First, you aren’t purchasing a productive asset—there is no 7% return coming from a new pair of sneakers. Second, you are financing today’s dopamine hit with your future labor. You are essentially reaching into the pocket of “Future You” to pay for “Current You’s” desire to upgrade a wardrobe, fund a vacation you can’t afford, or buy a gadget you don’t actually need.
In financial terms, these are negative compounders. They don’t just stop you from saving today; they preemptively lock up your ability to save tomorrow.
This entire industry is an economic abomination—the byproduct of decades of aggressive marketing and the desperate need for public companies to show “growth at any cost” every single quarter. It’s a system designed to strip-mine the consumer’s future balance sheet to hit a Q4 earnings target.
$$$
Make no mistake: nothing in this world is free. Those ‘0% interest’ sneakers are making someone a lot of money. To be precise, BNPL companies generate profit through three main levers:
Data Harvesting: They track your spending habits, brand loyalty, and repayment psychology.
Sales Funnel: They act as a high-powered marketing engine, driving “addictive” traffic to retailers for a massive fee.
Embedded Interest: Whether it’s late fees charged to you or merchant fees charged to the store, the cost of capital is always present.
Do not be fooled into thinking these services don’t come with a price tag. It’s similar to VAT in Europe; unlike in the US, where you see the tax added at the register, European prices have the tax baked in. You might forget that 21% of that random receipt is going straight to the government, but you’re still the one paying it.
The same logic applies to BNPL. If a merchant is being charged 6% by Klarna to process your interest-free order, they don’t just eat that cost… they raise their prices across the board to protect their margins.
You are paying for the privilege of debt through higher retail prices, and since you’re buying depreciating goods instead of productive assets... well, to put it plainly, the math just sucks.
Ending Note
We recognize that many of you are skeptical readers… and we appreciate that. To be clear, we are speaking to the vast majority of the population, the ‘95% rule’.
Of course, the math shifts for those with disabilities or circumstances that limit their ability to exchange labor for capital. In those cases, we move into the realm of necessary intervention.
Whether through philanthropies, NGOs, or state entities (though we harbor a well-documented distaste for the latter) you need to solve for these. Yet, even in these scenarios, the principle of the savings cycle remains the gold standard for long-term health.
Look at university endowment funds or sovereign wealth funds. The goal is never to simply receive and spend. The goal is to invest the principal so that, over time, the entity becomes self-sufficient, fueled by growth rather than constant inflows.
BNPL is the literal inversion of this. It makes the user (or the society) increasingly dependent on future inflows just to service past desires.
And for a bit of food for thought: look closely at the mechanics of pay-as-you-go (prefunded) pension plans. You’ll realize they are just BNPL on a civilizational scale.
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A good argument that highlights how BNPL shifts consumption forward at the expense of future financial stability, raising important questions about long-term incentives in modern consumer finance
Awesome article, loved it. Reading it took me to my Economics class during my MBA days.