Wednesday, October 07, 2009

The Balance Between Immediate and Delayed Gratification

There are two interesting by-products of the collapse of the economy and the outrageous rates and fees on credit cards: the increasing use of debit cards, and the return of my old friend layaway.

Debit cards, for those of you outside the US who may not be aware of the concept, are similar to credit cards, but take (debit) the money directly from your checking or savings account rather than loaning it to you from the bank at interest (like a credit card). The beauty of a debit card is that it doesn't let you spend more than you have, unless you tie it to some form of bank-provided overdraft protection.

Layaway is a throwback to an older time when stores would let you purchase items for a percentage of the total and a small processing fee. The store would then hold the items for a specified period of time, during which you would make regular payments until the total was paid off, at which time you received your items free and clear. My parents made great use of layaway at Christmas time, and I used it extensively during my younger (and poorer) years.

Debit cards and layaway represent responsible approaches to economic behavior. They help balance our love of instant gratification (the debit card lets you buy something now, as long as you have enough money) with our need to squeeze the most out of limited income. Some people look down their noses at layaway programs, thinking that only poor people use it. This is what I call stupid. As layaway reaches more and more stores, I will probably use it quite a bit. If you need something, but don't need it right away, it makes sense to buy it over time without the budgetary stress of high credit card interest rates and fees.

I tend to use the debit card almost exclusively for ordinary purchases. I seldom write checks any more...I pay bills online, and don't carry much cash around. It just makes things easier, plus I have an ongoing record of what I'm spending, and where, that I can check every day. By tracking expenses three ways - the pen-and-ink check register, the Quicken spreadsheet, and the bank's online site - I can watch my income and outgo struggle with each other and keep a close eye on my balances.

Managing one's money from day to day has come a long way since the days of a cash economy, passbook savings, and the family checkbook. It's easier to give in to immediate gratification with credit cards, but debit cards allow one to be more responsible, and good old layaway lets us stretch income while savoring the wait for things. My mother used to tell us that good things were worth waiting for - a gentle way of letting us know that we were never going to get all he things we wanted, at least not right away. Layaway teaches budgeting and patience.

I wonder if we could run state and federal governments on layaway?

No, it would never work. Big businesses and lobbies don't want their Congressmen sitting on a layaway shelf, they want to own them right now.

Instant gratification works if you have enough money.

Have a good day. More thoughts tomorrow.



Leslie David said...

I still use layaway for items that I want but are beyond paying for all at once but then I don't mind delaying gratification until I can afford it.

Gilahi said...

Actually, I read in the WP the other day that one of the reasons that banks push debit cards so much is that people DO have a larger tendency to overdraw their accounts with them, allowing the bank to stick them with a large fee. It's so bad that Congress is working on capping the practice.

Anonymous said...

You can end-around the bank by arranging automatic transfer from a savings account, particularly if you have a Credit Union debit card. Credit Unions tend to treat their customers more like human beings, since they are MEMBERs, not sheep to be fleeced by hidden charges.

Eminence Grise

Mike said...

Kid has CU debit card.
Kid has no sense of finance.
Kid has no money in savings.
Kid keeps taking money out.
CU says okey dokey.
Kid is $200 in the hole.
Dad pays off CU and destroys debit card.

KKTSews said...

I've heard the old "Christmas Club" is back at some savings banks, too. Had an interesting converstation with my 24 yr old daughter (law student) about how she sees her generation having a completely revised understanding now of what is "need" and "want". ANY job is good now. I wonder if premium cable channels subscriptions are down?