During the Great Depression, when cash was scarce and easy credit was a gleam in the banking industry's eye, merchants had to find a way to make the unattainable attainable. The solution was brilliant: Need a $30 gas stove but can't scratch up $30? Give us $10 a week for three weeks, and then come pick up your new appliance.
"Layaway" let people pay in installments, and it was a very popular program until the late '70s/early '80s. With the birth of the common credit card, buying something you couldn't totally (or remotely) afford became so simple, layaway plans all but vanished. Who needs to wait when you can swipe?
Lots of people, it turns out. The economic downturn that began in earnest in 2008 has had some ugly effects on household finances, leaving people paying exorbitant credit-card interest rates that lead, for many, to a lifetime of debt. And as people begin to forego, either by choice or necessity, the evil pleasure that is credit, merchants have once again heeded the call for another option.
Layaway is back. And this time, it's online.
An old program has been revamped for the digital age, and it's popping up at more retail Web sites every day. Pick your item, hand over a down payment and sometimes a small layaway fee, pay in installments over a set period of time, and your item is ready for pick-up or shipping when the final installment comes in.
The retailers that also have a brick-and-mortar presence offer layaway in their stores, too; but the online version seems to have particular appeal. Here, five reasons why people are flocking to this budget-conscious mode of online shopping.
Let's begin with the simplest benefit of online layaway: It's online.
For a significant portion of today's retail target market, brick-and-mortar barely registers. Shopping happens online. Need a comforter for your college dorm room? Planning a cruise to the Virgin Islands? Running out of your favorite shampoo? Google it up.
While the basic program is the same as it is in stores, signing up for layaway online is so much more convenient than driving to a store, finding your comforter, and carrying it to the layaway department that this new way to layaway is changing the face of the program.
In addition to the ease of shopping from home, for some people the fact that it's online has another draw: privacy. Some people who bought on layaway decades ago think of it as a sign of financial hardship, and prefer to head to the layaway counter in the privacy of their own home.
Of course, layaway is no longer a "poor people" thing. Lots of people buying on layaway these days are doing it out of choice, not necessity. It's a money-management strategy ...
The thing about credit is this: The instant gratification can be addictive.
OK, there are actually a lot of things about credit. It can make you lose sight of the value of money; it can encourage you to buy things you simply wouldn't if you had to pay cash; it can blur the line between "want" and "need."
In other words, it encourages impulse buying in a big way.
Layaway, on the other hand, requires planning. When you buy something on a layaway plan, you'll be paying for it over an extended period of time, typically anywhere from four to 12 weeks. This delayed gratification dramatically decreases the "thrill" of the buy and makes you think about each purchase you make. In the end, there's a greater likelihood you'll make a more rational decision with your money.
You might even end up spending less of it ...
If you're in the habit of only buying things for which you have the cash in your pocket, you're paying only retail value (or the sale price) for an item. A $600 computer costs $600 plus tax, and that's what you're spending on it.
If you put that same computer on a credit card, and you find you don't have quite enough to pay your credit card bill that month, you start racking up interest, which could be as much as 20 percent (or more). By the following month, that computer costs $720. Another month, and it's up to $864. And so on.
If you're not paying cash, layaway is your best bet for knowing exactly what you'll end up paying for your purchase. Simply take the $600 plus tax and add a layaway fee (usually $5 to $15).
One thing to keep in mind, though: Many layaway plans carry a cancellation fee, typically around $10 or $15 (or less for a lower-cost item). So if you decide after signing your contract that you don't really need a new computer, you could be out $15. Be sure to read the fine print.
Even if you do end up $15 poorer, your financial life is likely to look a lot brighter than if you put it on your card ...
It seems like almost everyone is carrying some debt these days, and at times it might be unavoidable. If you can avoid it, though, by choosing layaway, it's by far the smarter choice -- and not just money-wise.
Carrying debt, whether it's $2,000 or $20,000, is one of the greatest stressors in modern times. It has been known to cause marriage problems, stress-related health problems, and issues like depression and anxiety. The fact that layaway plans create zero debt is more than a money issue; for many, it's a good-living issue. Rather than the weight of a purchase pressing down on you for months (or years), you simply delay the completion of that purchase until you've already paid it off.
When you finally set up that new computer, there is only joy -- no guilt, no stress, no arguments. Just joy and adjusting to a new operating system.
And finally, perhaps the best reason of all to do your online shopping layaway-style ...
People who end up maxing out their credit cards, racking up interest and defaulting on payments can find themselves in a frighteningly far-reaching predicament. Not only are they in debt, stressed out, and paying more for what they buy than they ever intended, but they may find themselves forever locked out of buying a house, starting a business or owning a car.
Credit ratings have gone from a nebulous issue of reputation among neighbors and business associates to actual numbers, widely reported and sticky as gum, that can stand in the way of a loan forever. For people who either desperately want to avoid bad credit or find themselves unable to convince anyone to give them credit anymore, layaway can be ideal. It's not credit, so should you miss a payment or have to cancel your contract, it has no bearing on your credit score (unless you put the installments on a credit card). Ideally, you'll make your payments using debit, which won't come back to bite you next month or next year (or next decade).
The downside of this type of planned purchasing? Seasonal sales. If you're online to do your holiday or back-to-school shopping, making purchases two months in advance may leave you out in the cold when it comes to special promotions. Find out if the store will honor future promotional pricing, and if not, decide whether the benefits of layaway are worth the risk of possibly paying a little more.
If the other option is the evil pleasure of the swipe, you may just want to risk it.
HowStuffWorks talks to financial experts to find out the best ways to save money every day. And none of their advice includes giving up Starbucks.
More Great Links
- Conger, Cristen. "Are layaway plans or credit cards better for saving money?" HowStuffWorks. (Sept. 26, 2011) https://money.howstuffworks.com/personal-finance/budgeting/layaway-plan1.htm
- How does Kmart layaway work? Kmart. (Sept. 26, 2011) http://www.kmart.com/shc/s/dap_10151_10104_DAP_Kmart+Layaway?sid=KSx20070515x00001a&psid=42x2933551#tab2
- Ladika, Susan. "Online layaway: Old-fashioned payment system gets new digital life." CreditCards. May 17, 2011. (Sept. 26, 2011) http://www.creditcards.com/credit-card-news/online-layaway-plans-1273.php
- Layaway: Another Way to Buy. FTC Consumer Alert. (Sept. 26, 2011) http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt173.shtm
- Merzer, Martin. "Toys R Us joins retailers offering layaway plans." CreditCards. Oct. 21, 2009. (Sept. 26, 2011) http://www.creditcards.com/credit-card-news/toys-r-us-joins-layaway-plan-1273.php
- Sears and Kmart Offer Enhanced Online Layaway Options to Ease Back-to-Campus Spending. PR Newswire. Aug. 23, 2011. (Sept. 26, 2011) http://www.prnewswire.com/news-releases/sears-and-kmart-offer-enhanced-online-layaway-options-to-ease-back-to-campus-spending-128247528.html
- Sears layaway overview. Sears. (Sept. 26, 2011) http://www.sears.com/sears-layaway/dap-100000000168006#tab2
- Then and Now: Prices. Michigan Department of Natural Resources. (Sept. 29, 2011). http://www.michigan.gov/dnr/0,1607,7-153-54463_19268_20778-52530--,00.html