When I think back to my childhood, I recall saving up for things; I recall collecting points for items; and I recall putting things on layaway. It was a way to make sure you got the toy or piece of furniture or coat or whatever it was that you wanted without paying for it all at one time. Credit cards weren't used as freely as they are now, at least not in the world I grew up in.
To put something on layaway, you had to pay a small amount d own and perhaps a small fee and then you could make payments on your items in small increments or in a lump-sum payment. I don't remember layaway lasting more than a couple of month for each item. It was great for Christmas gifts, school clothes and larger ticket items. I even used layaway during my second year of college when I got my first apartment and needed to buy some items like a vacuum cleaner, bar stools and such.
As credit cards gained in popularity over the last 20 years, layaway began to fade away. Instead, people were able to have instant gratification when purchasing with the almighty credit card. Oh, yes, we were paying for it in interest, but we were able to live the lives we wanted rather than what we could afford.
While we still live in a world ruled by credit, people have been forced to live more within their means due to our sour, stagnant economy. This is not a bad thing. In fact, it's one of the few good things about our economy. However, there are also many who are just barely getting by, living paycheck to paycheck.
Those people still want to be able to buy their kids Christmas gifts or a new, warm coat or a new table for the dining room or a bed or other item they need without charging up credit cards. This is where layaway comes in. They can pick out the items today, pay a little from each check and be sure that in a few months they'll have paid for their holiday gifts or have outfitted their family for the winter or replaced old, broken furniture with new, etc.
Well, layaway is on the comeback with a number of large retail stores offering it to customers in this pre-holiday season. I recently read an article in The Week with excerpts from Mr. Hyman's NY Times article stating that the financing of layaway is much worse than using credit cards. Here's the example he gave, paraphrased by me:
A mom goes to buy Christmas gifts for her kids which total $100. She puts them on layaway, paying $10 down bringing her total owed down to $90, but then she has to pay a $5 service fee. She has basically two months to pay off the $90 remaining and has spent $15 already; paying just $5 more than what it would have cost her if she hadn't put it on layaway.
Mr. Hyman complains that the rate paid by this fictitious mom could be considered "predatory." Mr. Hyman equates this $5 fee for a $90 two month loan to a credit card with a 44% annual percentage rate. He complains that companies like Wal-Mart, Toys R Us and Sears are taking advantage of shoppers who are low on cash and credit.
I don't see it that way. I am in no way a fan of extra fees or high interest rates, but if by paying $5 extra dollars, it meant that I could afford the items my Darling Boys were dreaming of Santa bringing them for Christmas, then I would happily put the toys on layaway and pay the measly $5.
If the alternative was waiting until the last minute when I had saved up enough money to go shopping on Christmas Eve praying there would still be choice toys available, $5 is not a big price to pay. Additionally, if and when credit cards are used, often times a person uses it over and over and racks up so much debt that the fees and interest paid greatly exceeds $5 in the end. I would always choose layaway over a credit card.
What do you think? Are you a fan of layaway or do you side with Mr. Hyman? Is paying the $5 fee better than racking up more debt on credit cards; debt you may not be able to pay off right away, which means paying much more in interest? Over and out...