Reading Louis Hyman’s op-ed from yesterday’s NYTimes, I remember when my mom Mom went to Kmart for layaway. I was a kid in the Reagan era, and the term “lawaway” was synonomous with picking up school items and Christmas gifts. My dad was occasionally unemployed because large companies downsized computer programers in Chicago. He also had that nasty term in health insurance at the time, a “pre-existing condition.” Our health insurance was astronomical and took money away from groceries for a family of 5. But Mom could still afford to pay the small amounts of money towards a nice holiday or happy school year for the kids.
Compare this to what became a long term debt problem of over 5 credit cards including store credit cards at about 21% interest, not to mention late fees. Then my father died, she couldn’t handle the medical expenses from my father’s health expenses on top of the credit cards. She ended up in bankruptcy and the family house in foreclosure. So yeah, all this being said, credit gives me a real rosy picture as compared to layaway. Not.
Louis Hyman’s op-ed piece is right about what people can or can’t pay when it comes to purchases that aren’t out of pocket – for credit, not layaway. He points out how department stores worried about giving lower income customer’s access to layaway services, that there’s an idea that there is no limit. This is precisely the problem with credit. But credit compounds this by being continuous and not associated with the smaller stores who could put the kabash on things before they get out of hand. Credit companies instead have automated answering services that basically tell you to go screw yourself if you want human contact, or if you’re lucky enough to hear a voice, it’s an underpaid telecom intern from another country who only has allegience to his or her paycheck, not human decency.
Hyman argues that with layaway, stores worried that these customers wouldn’t be able to pay for the merchandise. But I say it’s credit that gives us this problem – we get the merchandise before we have to pay for it, and often forget that the money is already spent. This puts us further in the hole, whereas something like layaway is building towards the reward of purchase. Also, Hyman tries to make us look at percentage as compared to the actual money being spent. From his example, he talks about $5 to $15 more than the $100 of the complete purchase, suggesting that somehow credit cards give a fairer interest rate in comparison. Yet Hyman misses that point of layaway - that $100 is a one time purchase that will be paid off, or you lose the purchase. And, you can still get the money back! Unless you return the item that you already forgot your child threw in the closet a week ago, that money is gone. And a credit card has a consecutive minimum payment per month that, if it is put off, will charge late fees, and because of that “fair” interest, will build on the principle, making the monthly payment higher if you don’t continue to chip away at it or keep your credit card next to not being used.
But Hyman’s defense of credit cards to layaway seems somewhat missguided. It’s as if he’s suggesting that credit cards don’t charge you more in things we miss in the fine print of the contract or billing statement, that they can’t change that whenever they want, or that there aren’t fees for using ATMs. One concrete example recently of new fees being added - and not even to credit, but to debit – is Bank of America now charging an additional $5 to use the debit card. $5 seems to be the make it or break it deal with Hyman, so why isn’t he lambasting the banks for this?
In general, Hyman’s critique seems out of touch with the very thing he’s feigning to be avenging – the problem with affording stuff from low and no incomes. But by focusing on the return of layaway, he’s going after the wrong end of the chain. It’s not the corporate stores that we should be harranging, but the banks. My critique doesn’t even touch on how banks have abused their powers obtaining government funds, derivatives and the fine print crap we all have faced that charge us hidden fees, that’s for another post. I’m just saying that at least with layaway, you know what you’re dealing with.