Layaway not perfect, but an increasingly good option

ST. LOUIS, Mo. —The resurgence of layaway in recent years, with holiday layaway programs already up and running this year, is a curious phenomenon for a culture that values immediate gratification.

Unlike paying with credit cards where you get your hands on an item now and pay later, with layaway you make interest-free payments on a product that you get once it’s paid off.

On the surface, layaway also doesn’t always make the best financial sense. After all, it would probably be better to save the money yourself and not have to deal with upfront or cancellation fees of layaway programs.

But Haim Mano, a marketing professor at the University of Missouri-St. Louis, notes that people don’t always behave rationally.

“You could save the money and put it in the bank,” he said. “However, the psychology here is different. People want to make a commitment and feel that the product is yours.”

He added that layaway can be a form of self-imposed self-control for consumers who might otherwise be tempted to spend that money in other ways.

It’s not so different, he said, from how some people will put their alarm clock farther away from their beds because they know if it’s too close, they will hit the snooze button and go back to sleep.

Besides, people often overspend beyond their means when they pay on credit cards, he said. That’s a risk with layaway, too, but at least people don’t put themselves at risk of high interest payments or of going into debt.

Layaway, which dates back to the days of the Great Depression, was a popular tool in the 1960s and 1970s when credit was hard to come by. But it began to disappear in the days of easy credit.

That has all changed in the past few years since the Great Recession with many retailers bringing back or expanding their holiday layaway programs. And this year, many of the big guys have been sweetening the deal for consumers.

First, Walmart started its holiday layaway program a month earlier in mid-September to give consumers more time to pay for purchases. It also expanded the list of eligible items. Then Toys R Us announced it was waiving its upfront $5 service fee on layaway orders made by Oct. 31.

That prompted Walmart to lower its service fee from $15 to $5, which you can get back in the form of a gift card after your final payment.

Then Kmart said it, too, would waive its service fees — $5 for an eight-week contract and $10 for a 12-week program — through Nov. 15. Sears is doing the same for orders places through Oct. 29 and from Nov. 2 to Dec. 3.

This is all good news for consumers, making layaway an even better deal, said Richard Feinberg, professor of retail management of Purdue University.

“For the consumer, it’s a terrific thing,” he said. “They are more able to afford some of the things they want instead of going into debt on a credit card or not being able to buy them.”

For low-income consumers who continue to struggle in this economy, there may be no better option, Feinberg added.

“If our economic system was booming and everyone was doing well, I’m sure retailers would rather not do layaway. It’s a pain for them; it takes time and money.”

But stores offer layaway because the option allows people to buy items they might have forgone and it brings customers into their stores more often, increasing the chance of other purchases. And the option also keeps the biggest retailers competitive with one another.

For consumers, layaway can be a great option because they don’t have to take the risk that the item is gone by the time they finally have saved enough money to buy it, said Chris Thetford, a spokesman for the Better Business Bureau in St. Louis.

Still, he emphasizes that consumers should get to know the terms of the agreement: What the upfront and cancellation fees are, when payments are due, and what happens if you miss a payment.

“Can I just make it up or does all the stuff I have on layaway go back to a store shelf?” he said.

Another important thing to inquire about is what happens if the item you put on layaway goes on sale a couple weeks later. Do you still have to pay the original price or will you get the sale price? This policy varies by store.

And there are also third-party layaway websites that allow consumers to set aside items.

But again, Thetford reiterated, consumers should make sure it’s a reputable website and carefully read through the terms and conditions.