How Afterpay Day can trick your brain

Let's face it, we all love a bargain, and right now, we're seeing sales and discounted items everywhere, but are we really getting a bargain?

What often goes unnoticed is that when using services, such as buy now, pay later and credit cards, there are fees and/or interest charges that add to the purchase cost.

We know that the discounted price is on the recommended retail price (RRP), so any discount is not really that big when you consider we can buy the same item for less than the RRP if you shop around.

If we take a deep dive into the sales events like Black Friday and Afterpay Day, we discover that these are designed to entice us to buy items we don't really need.

The thought of getting a bargain pushes us to spend based on a concept known as financial abstraction. Adam Carroll talks about this in his TEDx talk, When money isn't real: The $10,000 experiment, and this week I had the pleasure of interviewing him on the subject.

The premise is that when we use credit cards, tap-and-go payments or buy now pay later, money doesn't seem real to us, so we're predisposed to spending more, as we crave the endorphins we get from buying something new.

Unfortunately, this leads to overspending, which has very real consequences, as it creates higher consumer debt, financial hardship and bankruptcy.

The concept of financial abstraction is why companies such as Block (who owns Square and Afterpay) and the banks will do very well.

While Square did not perform well last year, it has risen strongly in the last couple of months, trading up 38%, so it's one to watch. In March, Afterpay ran the first of two Afterpay Day sales event with the second scheduled for August. As usual, their goal is to get consumers to spend cash they don't have on discounted items using Afterpay as the payment vehicle.

While Afterpay is great for retailers, it's not good for consumers because it's putting people further into debt. So what can we do?

If you're enticed to look at the Afterpay Day sale next month, make sure you only spend on items you need and, more importantly, make sure you don't spend more than the cash you have in your bank account, so you can pay off the items quickly and avoid any extra fees.

The best and worst-performing sectors this week

The best-performing sectors include Financials up more than 3% followed by Information Technology up more than 2% and Utilities, which is just in the green.

The worst performing sectors include Materials down 2% followed by Communication Services and Consumer Staples, which are both down more than 1%.

The best-performing stocks in the ASX top 100 include Virgin Money up more than 7% followed by Ampol up more than 6% and Mineral Resources up more than 4%.

The worst performing stocks include Ansell down more than 14% followed by Northern Star Resources, down more than 11% and IGO down more than 7%.

What's next for the Australian stock market

After a very strong rise last week, any reasonable person would think the market would continue to be bullish this week.  But so far, the All Ordinaries Index has been rather flat up just 0.33% as of writing, with Wednesday the only real bullish day to date.

The good news is that the All Ordinaries Index has traded up to 7958 points, which is its highest level since 17 February, although what is more important is where it will close this week.

A close up around its high for the week is a strong sign the bullish move may continue into the next month. A low close will signal the opposite, which means we should expect some short term bearishness.

Given this, I continue to caution investors given that we are still in a time where anything can happen, which is why you need to be selective in the stocks you hold or those you intend to buy. If you decide to buy, do your research thoroughly and have an exit strategy.

While I believe any possible down move will be short-term, right now it pays to be conservative rather than aggressive.

Get stories like this in our newsletters.