Layaway: Just Say No!

Oct 31, 2012 by


slash through layawayWhen I was a kid—a number of years ago I won’t mention—I remember my Mom putting things on layaway at the local Sears store. And I recall my child’s sense of this magical gift called layaway: My Mom didn’t have the money for that kitchen mixer just now, so the store would generously hold it for her and let her pay for it in little chunks over a few months. When she’d paid enough, a clerk would retrieve the mixer from “the back” where it had been carefully stored—set aside just for my Mom—and present to my Mom her new purchase. Smiles prevailed all around.

Layaway Resurrected

While retailers focused on other methods—like branded credit cards—for inducing consumers to spend more, layaway virtually disappeared for decades. But now it’s back, and being promoted like mad, perhaps in part because of its nostalgic familiarity to Baby Boomers.

Walmart Takes the Lead

Because Walmart—the planet’s largest purveyor of garbage retailer—is pushing layaway in a big way, let’s take a look under the Walmart layaway hood. I found this through Walmart’s website:

Walmart layaway details

Observations on Walmart’s Layaway Policy

  • First, you’ll pay a $5 “open fee” to put something on layaway. (The fine print says the open fee may vary by state, and some variations are noted, likely to conform to state law.) Once you fully pay for your Walmart treasure, the fee is refunded—if, like Walmart, you define “refund” as giving you the opportunity to spend the $5 on some other Walmart junk product.
  • To start the layaway term, you must make a down payment of $10 or 10%, whichever is more.
  • If you don’t fully pay for your laid away items and pick them up by December 14, your layaway account is cancelled and your items are returned to the store’s inventory. (Note to self: Stay at least 3 miles away from all Walmarts on December 14.) You and probably several million other people in the same queue could then get back the payments you’ve made, but not the $5 open fee, even refunded to a Walmart Gift Card.

Reasons to Avoid Layaway

  • High Cost: Layaway makes an item less, not more, affordable because of the open fee. Let’s say you layaway $100 worth of Walmart crap merchandise and pay it off over 60 days. The $5 open fee you paid is equivalent to a 30% APR on the $100 expenditure! If you have a credit card with an APR under 30%, you’d be better off putting the $100 on the card and paying the balance off in 60 days (though I don’t want you to do that either!).
  • Who’s Fooling Whom?  Honestly, if you don’t have the $100 cash today to pay for gifts, you’re in a financial pinch, to say the least. Stretching out over a couple of months spending $100 you can’t afford to spend is going to make the pinch tighter, not looser. Here’s an idea: Instead of paying Walmart $5 to hold your money for you, if you really want to spend the $100, make the payments to yourself! If you’ve accumulated $100 in your personal layaway fund before holiday time, then go knock yourself out and buy away! Why get Walmart involved?
  • Time: Maybe you like visiting Walmart during holiday shopping season. But if not, bear in mind that you have to go to a Walmart and stand in line at a register to make each layaway payment. You’ll probably find more to buy each visit—at least that’s what Walmart’s layaway marketers are counting on! Who wants to stand awkwardly empty-handed in a cash register queue?
  • Ticking Clock: For many of us, cash is scarce in December. But come December 14 you better have the green to pay off your remaining layaway balance or Grinch Walmart may just suck your stockings dry. Sure, you can get your payments back (though you’re out the $5 open fee for good). I can’t begin to imagine the length and temperament of that line, populated by cash-poor consumers desperate, ten or fewer days before Christmas, to retrieve their money laid away at Walmart so they can still make little Johnny smile for a few minutes on Christmas morning.

How to Pay for the Holidays

Your aim should be to pay for holiday spending like nearly everything else: With cash my friends, with cash. A household budget with Planned Savings goals—including one for holiday spending—will help take the stress out of your holidays and prevent a January financial hangover.

Do You Layaway?

Have you or will you take advantage of layaway this season? If so, why would you do that?

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  • Jason @ WorkSaveLive

    I technically put my wife’s wedding ring on “layaway” but I had it paid off within 30 days and they didn’t charge me any fees for doing so. Heck, it might have just been 2 weeks until I got paid again..I can’t remember though. Since then I certainly haven’t put anything on layaway and we focus on saving up throughout the year so we’re prepared to buy all presents in cash by the time December rolls around.

    • http://mymoneycounselor.com/ Kurt Fischer

      Jason, yours is one of the very few situations I can think of where layaway might make sense: You’re buying a truly unique and costly item which could disappear by the time you save the cash to pay for it.

  • Andy Hough

    I think the reason layaway disappeared before was because it was replaced by people shopping with credit cards. Making a purchase on a credit card could be an even worse deal than layaway. If you don’t have the cash to buy an item you probably shouldn’t buy it.

  • Brick By Brick Investing

    Ugggh! Just stop it! I remember the day I saw the layaway commercials come back

  • http://twitter.com/CollegeInvestin The College Investor

    Layaway is such a ripoff, but the only reason these companies offer it is because so many consumers use it. Like Andy said, the bottom line is that people should not buy something if they can’t pay cash for it.

  • http://twitter.com/prairieecothrif Miss T

    My hubby and I refuse to use layaway. We would rather pay for something up front and if that means waiting until we can afford it than so be it. My uncle used layaway and then we had his stroke him and his wife ended up not being able to pay on time because he lost his job. It cost them additional interest fees.

  • http://mymoneycounselor.com/ Kurt Fischer

    Miss T: You and your hubby have mastered personal finance!
    Andy: I think you’re right about credit cards displacing layaway. Then some marketing genius said, “hey–why not do both!” And here we are.

  • frugalportland

    I saw that commercial and it made me sad. Preying on people who don’t read these blogs is reprehensible.

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