The simple facts on layway – and a grateful reminder

During undoubtedly the biggest shopping week of the year, several major retailers  – including Walmart, Sears and Toys R Us – are bringing back a purchasing tool of by-gone days: layaway.

The concept is simple.  If you can’t afford a purchase, the store will set it aside for you (for a fee, or course) and allow you to make payments on it.  Once you’ve paid off the item, you’re free to take it home. The system was set up before credit cards were common-place in American homes.

But there’s a problem with layaway. Compared to credit card interest rates, layaway fees are exorbitant. Louis Hyman, an assistant professor at Cornell’s School of Industrial and Labor Relations, explains in a New York Times column:

“Imagine a mother going to Walmart on Oct. 17 and buying $100 worth of Christmas toys. She makes a down payment of $10 and pays a $5 service fee. Over the next two months she pays off the rest. In effect, she is paying $5 in interest for a $90 loan for two months: the equivalent of a credit card with a 44 percent annual percentage rate, a level most of us would consider predatory.

“In comparison, even a card with an 18 percent A.P.R. would charge only half as much interest — and she could take those presents home the same day.

“Then consider what would happen if she couldn’t finish all the payments. Walmart would give her the money back, less $10. If she borrowed that $90 and paid $15 in interest for two months, she would have the equivalent of a jaw-dropping interest rate of 131 percent.”

The bottom line is that most layway program don’t pay.  Instead, it’s better to save up for your holiday presents.

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During this week of Thanksgiving, we’d also like to remind you that the feeling of thankfulness or gratitude is actually good for you.  Before you head out the door for those Black Friday sales, take a few minutes to remember what you’re grateful for.

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