Juicy AppleI earlier gave an example of someone walking through a carnival with only a quarter in her pocket, when some slick guy makes her a deal:

"This apple costs $2. If you want to purchase it, you can pay me a quarter now and every month afterwards for 2 years. OR you can put the quarter in your pocket and I will give you a dime for every month you don't take it out."

A reader pointed that, “Yeah, you save money [if you keep your quarter in your pocket], but ultimately you do not get the apple.” And I responded, “No, you do not get the apple immediately.”

So when you’re offered the above deal, here are your choices: you either pay $6 for a $2 apple, or...

... You wait a year and a half to purchase it for $2 using the money (interest) that the slick guy gives to you, or …

... You add a quarter to your pocket each month for 7 months and pay $2 using your own money and keep the dimes (interest) that you’ve accumulated, or …

… Any other combo that keeps the cost of the apple at or below $2!

What you do not get in any of the final three options is instant gratification.

And that is the real issue here -- instant, as opposed to deferred, gratification. Because, if you were not in debt, all the money used to pay debt could be saved. And if you had savings, you could pay for many emergencies from your savings instead of having to use a credit card. And, get this: you could save up for the items you want to purchase, instead of purchasing debt in order to have them immediately. Additionally, because you’d earn interest on your savings, you would get paid in order to defer your gratification.

Back in the ancient history of the 50’s, 60’s, and 70’s, stores were set up this way. Most department, furniture and clothing stores offered layaway services. You could purchase all kinds of things this way without incurring increasing debt. You paid a simple one-time fee and promised to pay every two weeks or once a month till you paid it off. Some stores allowed you to take the items home after you had paid a portion off. It was a good way to establish a credit history. Layaway helped many working class families (mine included) afford furniture, appliances and large ticket purchases such as back-to-school clothing and winter coats. Also most department and furniture stores offered the service along side store specific credit cards. For many small merchants however, lay-a-way was the only option besides outright purchase. Also, even with the fee, it was still cheaper than long-term credit card debt.

However compared to simply putting the money in a savings account until you had enough to buy the item, layaway compared poorly. You didn't earn interest and instead the store earned interest on your money. Plus, you lost the use of the money in case of an emergency. Thus, if you'd committed to put $50 in law-a-way every month for a $250 item and had done so for 4 months ($200 if my math is right) and then your car broke down and needed a $200 repair, you didn't have the choice to take the money out to fix your car so you could get to work. A better option even then was to rely on passbook savings accounts. Additionally most banks and credit unions advertised “savings plans or Christmas funds” in order to encourage folks to save money in order to make purchases.

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