Buy Now, Pay (or regret) Later

Usually on Black Friday I write about perspective – that any deal on electronics is not worth the life of the person trampled in the stampede. Another aspect of perspective is appreciating what we have and not constantly yearning after more or bigger or newer. The problem is that understanding the difference between wants and needs is only a first step. It must be followed by the discipline not to ignore reality by buying something anyway, especially something you can’t afford.

What seems to be catching on today is a new gimmick called point-of-sale installment loans. “This holiday season, it's not enough to spot a great Black Friday deal on a big screen TV or a sweater. You need to consider whether you want to take out a loan at the checkout, too.” 

That’s right; shoppers no longer need to go to a bank for a loan to buy something they can’t pay for. An installment loan at checkout breaks the cash register receipt into a number of easy monthly payments. That service is now available at Wal-Mart and at many other retailers, both brick-and-mortar and on line. And installment loans are expected to be “hot this holiday season, as retailers attempt to drive sales and shoppers demand easy-to-understand credit.” Retailers are partnering with finance companies to give shoppers these loans, even to people who might not qualify for regular credit cards. Instead of paying at the time of purchase, shoppers can take the items home and pay in 3, 6 or 12 monthly payments.

This is not a new idea, but was usually limited to big-ticket items. Furniture stores have used it for years. The problem is that the eventual monthly payments add up to more than the original price – sometimes 20% or 30% more. 

Not paying cash at checkout is not new either. Credit cards made that possible years ago, and both arrangements involve interest. But shoppers generally ignore the interest in light of the convenience and recognize some advantages over credit cards. Installment loans have no late payment fees, which are a big revenue source for credit card companies, and people tend to like the idea of a predictable, fixed amount each month.

It really is the same idea as a mortgage or car payment, but now the idea is moving downstream to less expensive purchases. Another source says installment plans have a “wide appeal but resonates most strongly for debit users. Four-in-ten would consider using an installment plan for everyday purchases like groceries and household items.”

An American Banker article has another explanation for the trend; “many younger Americans are uncomfortable carrying credit card balances, partly because they saw their parents struggle with debt during the financial crisis and prefer the more certain repayment terms of installment loans.”

This brings up a few issues. First, the financial problems of the parents of younger Americans were not the fault of the credit card. They were problems of discipline and perspective. Going into debt in a different way is no guarantee of success. Since installment plans have no late fee, what do they do instead, send debt collectors or repossess the sweaters and Christmas toys? (This is not addressed in any of the stories.)

In effect, this is just another marketing ploy to get people to spend money they don’t have. The example in one of the articles was of a woman who bought tires from Wal-Mart. She was all right with paying the $644 in three monthly payments of $224, but she “doesn't remember the interest rate.” (It’s about 18% APR.) In this case, tires were probably a necessity, but sweaters, purses and toys?

All this is happening while U.S. household debt, according to Motely Fool, reached $13.54 trillion earlier this year, “an amount that has risen for 18 consecutive quarters.” 

Wake up America; debt is debt! Have a happy Black Friday, but don’t do anything foolish.

The Opposite of a Bargain

Today is “Black Friday,” and people love bargains. Sometimes they love bargains too much and end up injuring others as a result. I hope that doesn’t happen this year, but even some mild pushing and shoving is a sign of poor perspective.

Despite the history of Black Friday, the fact that most of us like bargains can be lost on the experts. In early 2012, Ron Johnson, the new CEO of JC Penney announced a major overhaul of their business plan.  “Fair and square” low pricing was to replace the idea of weekly sales and promotions. He assumed everyone could see through those “fake prices” – marked up to be reduced later. It was logical. But Penney soon found out that shoppers aren’t always logical, especially when anticipating an exciting adventure of hunting for deals and then being able to boast about their cleverness. It’s in their shopping DNA, giving them a psychological boost and a feeling of pride to discover how much they “saved.” 

But that is not always the case, as we can see from this Bloomberg story, headlined: “How Companies Get You to Pay More for the Same Product.” 

Some of the tricks are quite old, like the word “repeat” on shampoo instructions or the suggestion to not let kids use more toothpaste than the size of a pea, implying that adults need to use more. 

Many times we are forced or tricked into either paying more or getting less for the same price. But there are also cases where companies use artificial scarcity to boost the price and desirability of the products. The article discusses five categories.

“Shrink-flation” is how they term getting less for the same price. The standard example is ice cream. “Häagen-Dazs brand reduced the size of its ‘pint’ containers from 16 ounces to 14 oz.” Likewise, what used to be a half gallon, became 1.5 quarts several years ago, and now my favorite comes in at 1.43 quarts. The same is true of candy bars and other sweets, but also of some breakfast cereal (17.3 oz.) and canned green beans (14.5 oz.).

The next they call “Auto Bundles.” “The average new car cost more than $37,000 in October, mostly from the desire for bigger SUVs and trucks, but “options packages and custom trim lines can swell a sticker price by thousands of dollars.” The 12-inch touchscreen for a Ram truck adds almost $8,000 alone.

“Premium Economy” is the new trick airlines use to offer more legroom and amenities to those wanting more but unwilling to break the bank to fly first class.

The “Women’s Brands” category emphasizes how women often pay more for the same product from jeans to deodorant. It’s called the “pink tax” and has been around for a while. One brand even advertises their products as “pink tax free,” although that's hard to prove for their tampons.

The last category is the most problematic as it seems to prey on individual’s need to impress – a real perspective killer! It’s dubbed “Fashion Drops.” European luxury brands and other are trying “to put scarcity back in the equation” with special releases of limited productions. (This artificial scarcity has long been practiced by the diamond industry.) One such example given is Kanye West “Yeezy” Adidas sneakers.

Looking up fashion drops was a learning experience. One site, drophype.com (at least they are honest about the hype), promises the latest news on these highly desirable, special releases; but the last posting is 2 years old, so either the hype has cooled or they just fell behind. But some of those Yeezy sneakers sell here for $999, or only $28 a month! 

Those are apparently the latest tricks and lures for unsuspecting shoppers. Good luck for Black Friday shopping, try to keep some sense of perspective so you don't end up owing a monthly payment on your footwear.

Black Friday

As we recover from the Thanksgiving festivities and begin the battle over Christmas presents, with many pushing and shoving to get the best deals on electronics and other sale items, it helps to remember that thanksgiving is just another word for gratitude.  This is the time of the year when perspective seems to fly out the window for many people, and when that happens we stress over trivial problems, senseless disagreements and imaginary slights.

This news article from earlier in the week provides an interesting comparison:  “A stampede erupted while food aid was being distributed in a Moroccan village Sunday and at least 15 people died and 10 were injured, authorities said.”