Layaway: Just Say No!
When 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.
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:
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?