Bring Back the Layaway

One of the rare good—maybe even quaint—features of the last recession was the return of the layaway.  This is the practice of putting a down payment on an item and adding perhaps a $1 or $2 fee to have the store hold it while you make periodic payments until the full price is paid and you take possession of the item.  Before the explosive distribution of credit cards in the mid 1970’s onward, layaways were a popular means of purchasing goods for which you did not have the full purchase price.  Essentially, it was like making a purchase with a credit card, except with plastic the purchaser takes immediate possession of the item and pays interest to the credit card company as he stretches out the time period over which he pays for the item.

 Our parents and grandparents were quite familiar with layaway purchases.  It was a popular way in the weeks leading up to Christmas to buy holiday gifts.  My father certainly made use of it.  I did, too, in my younger years, though the practice was fading by then as the appeal of immediate gratification (for a price) via credit cards caught on.

 But alas, layaways grew rarer again as the economy improved.  And now, in another alternative to buying via credit cards, several companies (many are start-up businesses) have teamed with online retailers to offer “payment plans” for larger purchases, from fashion apparel to vacations.  It amounts to taking out a loan, with the buyer having to make periodic payments and in many instances paying fees and interest.  But like a credit card purchase, the buyer takes immediate possession of the item (or at least has it shipped right away).  That is the appeal.  And that is the shame.

 Layaways were a throwback to (in my opinion) a better time, an era when people were generally more financially responsible, were willing to defer gratification instead of going into debt.  These payment plans present a new set of dangers to consumers.

 First, consumers will purchase more since they have more options to pay for their goods.  Retailers explicitly acknowledge this is a tool to combat “abandoned shopping carts”, the phenomenon of online shoppers getting to the end of their transaction and then being scared into not actually buying when they see the final tally and wonder how they will pay for it.

 Second, for a person who shops online frequently, he may quickly find himself with multiple “loans” from several companies for which he must make bi-weekly or monthly payments.  The financial strain can sneak up on the careless. 

 Finally, the fees and sometimes even interest rates up to 30% can trap the consumer in a cycle of debt.  There is no credit card limit to restrain him, only the discretion of the lenders.  And I haven’t heard of any of these companies offering reward points or airline miles as you might get as a consolation prize when using a credit card.

 Convenience and immediate gratification often come with a hefty price tag.  Retailers are happy to accommodate your desires.  It’s their business to keep you satisfied.  But they are also in business to make money.  Don’t give them any more of yours than absolutely necessary.  Your business is to stay financially stable and secure.

 Until next time,

 Roger

 “Hope deferred makes the heart sick, but a longing fulfilled is a tree of life.” Proverbs 13:12 NIV®*

 *Scripture quotations taken from the Holy Bible, New International Version® NIV®

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