By Vihaan Bhatnagar
With various corporations moving towards subscription-based payment models to boost revenue, some Toronto Metropolitan University (TMU) students say smaller, easy-to-forget monthly fees can have an impact on their personal finances.
According to a 2023 report by the National Bureau of Economic Research, companies could earn up to three times more revenue because of forgetful customers who have automatic payments enabled.
First-year business management student Andrew Garland said he’s experienced forgetting to cancel a service and unwittingly paying for it. “I [forgot to cancel] with Chegg. It just kept racking up and I didn’t realize it until I saw it on my card report, so I had to cancel it right away,” he said.
He also explained how during months when he’s faced with tighter budgets, forgotten fees can add up, leaving him “really struggling” to pay off his balance.
“The thing about money that is very unpleasant is that you can’t have everything. You have to learn to budget”
David Soberman, the Canadian National Chair of Strategic Marketing at the University of Toronto’s Joseph L. Rotman School of Management, said some companies purposely tend to make the option to cancel subscriptions difficult to access or easy to forget.
“Obviously there’s the fact that many of these services have opt-out instead of opt-in [subscription options]. So when you have an opt-out, it means if you don’t pay attention, you’ll be charged for the next period or the next month automatically,” he said.
According to a survey conducted by Hardbacon, a personal finance application, 73 per cent of Canadian respondents had subscribed to services for a free trial or promotion and then ultimately forgotten to cancel before the period ended. The survey, conducted in March 2024, also reported that the average Canadian had eight recurring subscriptions.
Although Garland uses several of his parents’ plans for recurring subscription-based services, he still pays for monthly plans like Uber One and Chegg which offer student discounts.
Chris Gibbs, an associate professor at TMU’s Ted Rogers School of Management (TRSM) and an expert in marketing, said there has been an increase in subscription-based business models, leaving consumers with no choice but to sign up for recurring payments.
“[There are] two sorts of models that [companies use]—one is they give free trials, so you try something for a month and the first month is free and after that you have to pay. Then there’s what we call ‘freemiums,’” said Gibbs. “‘Freemium’ is when you subscribe to a service and you get a basic level of service for free, but if you want certain benefits or features or you want to use it more, you have to pay.”
According to Investopedia, “Freemium business models are popular and have the advantage of acquiring a large set of initial users under a pressure-free trial.”
“It is something I have to centre on when I’m planning my budget for the month”
However, the website also stated that limited access to features on “freemium” services is designed to entice users to pay full price for the recurring service and have a better overall user experience.
Matthew Grant, a third-year fashion student explained that subscription fees play a significant role in his short term financial planning. “[Recurring payments are] not something crazy usually but it is something I have to centre on when I’m planning my budget for the month,” he said.
Grant said he’s seen “a dent” in his monthly finances as he’s subscribed to services like Netflix and Spotify, with his total monthly recurring payments adding up to $50 per month.
With recent price increases from Netflix, students like Grant can expect to pay an additional $2 to $2.50 per month, according to new payment plan figures released by Netflix Canada.
Coleen Clark, professor emerita at TRSM and former coordinator of the Chang School’s Certificate in Financial Planning said students should carefully pick and choose what they pay for.
“The thing about money that is very unpleasant is that you can’t have everything. You have to learn to budget.” said Clark. “You have to look at what you’re paying, look at what you’re getting out of it.”
Clark said that although it may seem frustrating, students need to become more financially literate if they wish to fulfil long-term goals, such as buying a house.
“You have to start learning about interest rates. You have to start learning about what it takes to get a mortgage. There’s a first-time homeowners plan. Do you know about that? No? Get into that. You have to learn about these things,” said Clark.
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