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When I first read the news about alleged Good Samaritans and Secret Santas paying off Kmart customers’ layaway accounts, the cynical side of my mind took over. What a great marketing maneuver for K-Mart. With mystery lay-off angels, they are saying, “Buy your gifts on layaway here, an action that could very well be profitable for us. There’s a chance someone will pay off your layaway account — but no promises.”

The press Kmart has received both in social media and in mainstream news has been significant. How can you not think that this movement, which seems to be tied almost exclusively to one particular retailer, is not an inside initiative? It also strikes me as odd that in many of the cases I’ve read about, the mystery helpers do not pay the accounts off in full. They leave a small amount left in the account for the customers to pay.

My cynicism is probably an overreaction, at least in most cases. I may be overreacting to the idea that Kmart needs whatever help in the press in can get. To illustrate what the experience of having your layaway account paid off by a stranger might look like, here is a personal account of what happened in one store:

… A young father wearing dirty clothes and worn-out boots stood in line at a layaway counter alongside three small children. He asked to pay something on his bill because he knew he wouldn’t be able to afford it all before Christmas. Then a mysterious woman stepped up to the counter.

“She told him, ‘No, I’m paying for it,’” recalled Edna Deppe, assistant manager at the store in Indianapolis. “He just stood there and looked at her and then looked at me and asked if it was a joke. I told him it wasn’t, and that she was going to pay for him. And he just busted out in tears.”

Before she left the store Tuesday evening, the Indianapolis woman in her mid-40s had paid the layaway orders for as many as 50 people. On the way out, she handed out $50 bills and paid for two carts of toys for a woman in line at the cash register.

“She was doing it in the memory of her husband who had just died, and she said she wasn’t going to be able to spend it and wanted to make people happy with it…”

KmartWhy are these generous people targeting almost exclusively Kmart? Many other stores, like Walmart, Best Buy, Sears and Toys-R-Us, offer layaway programs. It’s this association with one particular retailer that has my public-relations radar pinging.

Kmart as a business entity has been financially troubled for some time. Any press is good press, and charity-infused press is great press. Anything that drives people to shop, including the idea that a mystery individual will cover the rest of your layaway payments, can help the company survive.

Perhaps Kmart is singly targeted because of its history. This particular retailer has offered and profited from layaways consistently for decades, and Kmart is perhaps the one store most associated with this type of purchasing plan.

These acts of charity are coming too late to inspire a shopper to take a chance by initiating a new layaway plan in time to receive the gifts in full by Christmas. There is a small chance that someone might come in and make the payment, but is it worth the risk?

Let’s say you want to buy gifts at Kmart with a total value of $250. With the 8-week layaway plan, you would need to pay $26 today and four bi-weekly payments of $58. Assuming you follow through, you won’t be able to take home the gifts before Hanukkah or Christmas, and you will have spent $8 more than today’s advertised prices. If, however, someone pays the remainder of your layaway account before the end of the week, you would have received $250 in gifts after paying only $26. I would further assume that this charity will not continue after the holidays, so there is even a lower probability of a Secret Santa paying off layaway accounts after Christmas. If you give up paying after the end of the week because you were hoping for charity rather than planning to pay for the items in full, you’ll have sunk only $26 into a purchase you’d never receive.

In other words, it’s an expensive lottery.

Tom Dziubek, podcast host and producer and extraordinaire, and I were discussing this story. He mentioned that reading about the charity of fellow humans inspired him to remember to complete his own charitable contributions. The spirit of giving is infectious. Some Kmart shoppers who have been the beneficiaries of good will have done the same for other layaway customers, and people who read positive stories are inspired to do other good deeds.

This holiday season, I’ll leave my cynicism behind. Perhaps these random acts of kindness are not part of a marketing scheme. Perhaps the are simply the result of charitable individuals not associated with Kmart. Perhaps the media isn’t complicit with promoting one retailer over another. Just this once.

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Photo: robertstinnett
Detroit Free Press

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10 Cash Back Credit Card Traps

This article was written by in Credit. 16 comments.

For my own finances, I’ve been a fan of credit cards with cash back programs. Some financial experts advise avoiding credit cards completely, even those cards that offer rewards like cash back or offer on best gas credit cards and small business credit cards. I’ve never been a fan of this approach — again, for my own finances — because I see a credit cards as just another tool for personal finance. A hammer is inherently neither good nor evil; it’s a tool that someone can use to fix a roof or to send another person to the hospital.

For a large portion of consumers, credit cards cause trouble. That may not be a reason to avoid credit cards entirely, as consumers can learn how to use credit cards effectively. Those of us who do believe we use cash back credit cards responsibly, paying bills in full every month, never paying interest, and buying only what we can afford, are relatively comfortable with the use of this tool, but even the best of us are subject to issuers’ traps.

Cash back credit card programs include traps that help issuers recover the cost of paying out benefits to their customers. While some traps can be avoided by managing finances closely, other traps take advantage of the psychological aspects of using plastic rather than cash. These traps can be more difficult to avoid, because consumers cannot control their subconscious tendencies. Here are the cash back traps to avoid, if you can.

1. Credit card users spend more

Cash Back Credit CardsThe process of taking cash out of your wallet and handing that money to another person is a very deliberate activity, both physically and mentally. Parting with cash has psychological ramifications. In most people, particularly those who best understand the value of having money saved, the act of giving the cash away triggers the same reaction as a painful activity. Spending money and pain are linked in the brain.

When you use credit cards, you add a buffer between your cash and the process of parting with it. Spenders are less likely to hesitate and less likely to get that twinge of pain associated with handing over bills and coins. People familiar with computer science would call this a layer of abstraction. You’re controlling your money by using a representation of that money, not the cash itself, and that makes the process feel better. In addition, cards with a rewards program like cash back encourage higher spending, because that cash back is seen as a reward that can be maximized by spending more.

Avoid this by making a concerted effort to buy only what you could afford with cash at any time.

2. Late fees and interest negate any cash back benefits

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In the midst of the economic recession a few years ago, layaway programs made a big comeback. Previously a great method for buying items that may have been on the expensive side in eras when credit was not available to many consumers, the same economic conditions returned when credit card offers became scarce recently. Layaway programs are popular around the holidays, because consumers who plan in advance can reserve popular gifts (like the year’s hottest toys) while saving for the complete purchase, regardless of whether a credit card is available.

Taking Walmart’s layaway program as an example, we can draw a comparison between shopping with a layaway program, using a credit card, and paying with cash. Assume you use Walmart’s full layaway period, October 17 through December 16, you make payments for two months before receiving your item, and you pay a $5 up-front fee for the privilege. Assume also you are buying items that cost $250 in total. The $5 fee over two months equates roughly to a 12% annual percentage rate. That’s not that much different from credit card rates, possibly a little lower than average.

With a credit card, however, you can take the purchased item home immediately. With layaway, the store holds the product for you until you’ve completed your payments. If you decide later on not to finish purchasing an item on layaway, you’ll need to pay another fee in order to get your initial deposit of 10% of the item price and any subsequent payments back.

Without a layaway program or a credit card, you would need to save on your own before having enough cash to buy your items. If it takes two months to save up, you would receive the item at the same time you would have if you had taken advantage of layaway, but without the item reserved for you, it might be sold out by the time you can afford to buy it. That’s reason enough to avoid some of the most popular holiday gifts. The best option is to save for your holiday spending — or spending for any large item for which a layaway program would be beneficial — well enough in advance of needing to complete the purchase.

There are several benefits of taking advantage of a layaway program for holiday shopping.

  • Reserve your item in advance, ensuring the popular item will be available later.
  • Avoid traditional banks and credit cards, and likely pay smaller fees.
  • Keep your savings in your bank account.

Layaway programs provide an alternative to saving in advance, with a fee to pay for the privilege. In some cases, it can be a better deal than paying with a credit card, though consumers making credit card payments have the advantage of taking the purchased item home immediately.

Besides these benefits, there are potential drawbacks and dangers. One important drawback of layaway programs is that you lock in the price when you place your downpayment. If the store offers a sale later on, you won’t be able to take advantage of the lower price without cancelling your layaway and incurring fees to do so. If the item you wish to buy is offered at a deep discount, you may be willing to incur the cancellation fee, but otherwise the result is paying more to take home an item than shoppers who bought the item that day without the help of layaway.

Be aware of your store’s policies. While the cancellation of a layaway program usually won’t prevent a full refund (minus fees), some stores take a stronger stance and offer no refunds.

There is a lot of pressure to buy gifts during the holiday season in an effort not to disappoint loved ones. It’s much easier to manage expectations — or it can be, if a family has a philosophy of managing expectations already — than to jump through financial hoops to buy the latest and greatest trendy gifts.

Have you taken advantage of a layaway program?

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The best way to get the most for your money when shopping for school supplies is to start early. While there are some good deals and good sales during the summer before the school year starts, you can only take advantage of them if you’re prepared. Some deals aren’t ask great as they’re advertised to be, so it pays to take on this task deliberately, not in a mad rush the day before school starts, with crowded stores, frantic shoppers, and empty shelves.

The goal of back-to-school shopping is to get what the students need and to do so without spending a fortune. In today’s consumer-driven world, it’s not surprising that kids want what they see on television and what other kids have. The balance between these wants and needs is important, and parents shouldn’t be afraid to say that needs come first and wants can be evaluated later.

1. Receive guidance from teachers.

Many teachers communicate with parents before the school year starts to make sure incoming students have a list of the materials they’ll need for the class. Notebooks, pens, pencils and subject-specific tools usually top the list of requirements, and this can be a long list. In this article, I was planning to include a list of the required materials for incoming sixth graders at a public elementary school in Queens, New York, but it was too long to include here. Take a look at this list (pdf): Grade 6 Student Required Materials.

You can anticipate lists like these getting longer as schools don’t include materials for students in their budget and teachers, who often pay for school supplies from their own pockets without school reimbursement, are affected by the recession just like everyone else.

2. Locate your reusable materials from last year.

Students do not need a new backpack every year. A quality name brand backpack should last several years, if not an entire elementary school career. Some manufacturers like Jansport have a lifetime guarantee, so there is rarely a need to buy a new backpack unless it’s been severely damaged, and certainly no need every year. You may save money in the short-term by buying a generic backpack, but if it’s made out of lesser quality materials, it won’t last long.

Unused paper from one year can be a starting point for the current year. If the child didn’t fully use notebooks from the previous year, the leftover pages are as good as new. Pens, pencils, markers, and crayons can be used until they’re depleted. Loose-leaf binders and folders can survive more than one year. It surprises me that a Flash drive is required for sixth graders, but there should be no need to buy new drives every year.

3. Find the best deals.

I’ve acquired a habit of going to Amazon.com for many of the things I buy. They usually offer the lowest prices, and I benefit from free shipping and, at least until the law is eventually changed, no sales tax (though the use tax on my state income tax return negates that benefit). When it comes to school supplies, however, I’ve noticed that Amazon.com does not always have the lowest price, even taking into consideration those advantages.

During the summer, it’s best to keep checking local convenience stores like CVS or Duane Reade for their best specials. Walmart and Target will often present too-good-to-be-true discounts on back-to-school items, and you’ll generally need to move quickly to take advantage of these.

Staples often competes well with these stores for school supplies. I was in Staples a few days ago and they were selling a $10 savings pass. This pass grants the holder a 15% discount on back-to-school items for a limited time. Some quick math tells me you would need to spend about $67 in back-to-school supplies at Stapled in order for this savings pass to pay for itself.

Check for your state’s sales tax holiday. Most states that participate in sales tax holidays have several days set aside for shopping for back-to-school supplies. Being granted the benefit of not owing sales tax is not a guarantee that you’re getting a better price. Check the sales at the stores where you shop to determine if you lose a discount in exchange for the brief tax relief.

Price comparison websites also help. Keep FatWallet and PriceGrabber on your internet speed dial.

4. Manage your child’s expectations.

At a certain age, children start feeling pressure to fit in. That means they are concerned about their appearance. They want to have clothes and accessories (like backpacks, book covers, and bags) that allow others to quickly identify them within a certain group. Parents have the tough job of balancing the need for their kids to not be an outcast with the need for their kids to understand that superficial things like clothes aren’t all that important.

Growing children go through clothing fast, and it can be expensive to clothe a child with new threads every year — or more often than every year. The art of parents convincing children that wearing handed-down clothing is not shameful seems to be lost, for the most part. If a child has a source for slightly used clothing, like an older sibling or a bigger friend, these handed-down clothes can serve as a core wardrobe with one or two new items each year.

Back-to-school shopping can be a teachable moment for parents and their children, identifying the differences between wants and needs. Needs should be the priority, and parents can indulge in their children’s wants only when their finances make it possible. That is, all other needs should be met first. This approach does not work well unless parents effectively live by this philosophy for their own expenses. A child who is neglected the satisfaction of realized desires during the process of learning about needs and wants could develop a negative attitude, particularly if it’s clear that the parents indulge their own desires without prioritizing needs first.

5. Keep your budget in mind.

Back-to-school shopping is not a monthly recurring expense, so many unsuspecting parents forget to include this need when planning a budget. If a household doesn’t have cash left over from income after taking care of other expenses and saving, families could end up raiding a goal-oriented savings account or taking out the credit card for back-to-school supplies. Few things feel worse than the need to reduce your vacation fund in order to cover back-to-school shopping as if it were a surprise. Going into debt would feel worse.

Either way, make a note to remember to budget for school supplies next year.

If back-to-school shopping was included in your budget, establish a frugal mindset for yourself to ensure you stay within budget. Again, it comes down to managing your children’s expectations.

What are some of your best practices and tips for back-to-school shopping? Leave your suggestions below. If you are a member of the Consumerism Commentary community (use the Log In or Register link at the very top of the page) and you leave the best suggestion, you will receive extra points that can be used for purchasing Amazon.com gift cards in the Consumerism Commentary Store.

Photo: kevindooley

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Extreme Couponing Fuzzy Math

by Flexo
Walmart Grocery Shopping

I’m a big fan of saving money on necessary spending. Grocery shopping is expensive, and food and household staples present an excellent opportunity to find coupons and save money with every visit. The savings can be substantial if you’re willing to put in the time to find the right coupons, dumpster-dive to collect other people’s ... Continue reading this article…

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Upromise Review

by Flexo

Upromise takes the concept of earning cash back on everyday purchases and aligns this benefit with saving for college or paying off student loan debt. You buy groceries anyway; Upromise helps you earn cash back on what you buy and use that money for your education expenses, the education of a relative, or for any ... Continue reading this article…

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The Best Prepaid Debit Cards, February 2012

by Flexo

Prepaid debit cards have always been a controversial topic, particularly the cards that carry insanely high fees just for making everyday purchases. Suze Orman’s entry into the prepaid card business, the Approved Card, prompted heated debate about whether it represented a conflict of interest, given Orman’s following. In 2010, after the Kardashians announced their branded ... Continue reading this article…

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Democracy, Incorporated

by Smithee

The following is at least as much opinion as fact, but if I say something that isn’t factual, please tell me. Our American version of democracy has never been pure or particularly representative. From women’s suffrage to civil rights to lobbyist influence to rumors that can spread around the world before truth gets up off ... Continue reading this article…

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