Why You Might Love Holiday Layaway — Even Though Personal Finance Experts Hate It

walmart layaway
lola1960 under Creative Commons

You know all about Christmas creep, but have you heard Walmart started its holiday shopping extra-early this year?

The Walmart layaway program launched two weeks earlier than it has in previous years, officially kicking off the retailer’s holiday season before September even started.

In addition to an early start for holiday layaway, Walmart reduced the minimum price of many of its layaway-eligible items to $10 (down from $15), with a minimum total layaway purchase of $50.

“In the five years we’ve been offering this holiday layaway program, we’ve discovered that customers use it for a whole host of reasons, from being able to better budget their money and avoiding credit card fees,” Ann Marie Kehoe, VP of toys for Walmart, told Reuters.

Layaway has gone through periods of popularity since it first appeared almost 100 years ago. And experts have strong opinions about whether this method of budgeting is worth it for the average shopper.

Let’s take a look at the origins and modern reflections of layaway, and how to use it to your best benefit this holiday season.

How Layaway Got Started — and Why You Might Use It

Layaway got its start around the time of the Great Depression. In the 1920s, you could purchase items on installment, meaning you got to use them right away while still making payments. This method is still offered today by some retailers like those who offer appliances, electronics, furniture and of course, cars.

But during the financial crisis of the 1930s, credit dried up. If you didn’t have reliable income, you had a hard time buying big-ticket items your family might need. Retailers weren’t willing to let merchandise walk away without the full price accounted for.

It’s hard to pinpoint who should get credit for starting layaway programs in America. But it may have been a Japanese method from 1920s brought over to the United States by sewing machine salesmen.

They promoted a sewing machine layaway program to families with young daughters: “The parents could start paying [for a sewing machine] at birth. When their youngster was ready to learn to sew, they would own the machine,” explains Jan Logemann in The Development of Consumer Credit in Global Perspective.

But while layaway was popular up through the 1980s and into 1990s — used both by people who didn’t have credit or didn’t want to use it — debit and credit card purchases became increasingly common. Walmart even dropped its layaway program in 2006.

Guess what brought layaway back? The Great Recession. Kmart started pushing layaway again in 2008, and Walmart quickly caught back up by reoffering holiday layaway.

“But consumers aren’t using layaway just because they don’t have other options,” James Surowiecki wrote for the New Yorker in 2012.

“They’re using it as a way to manage their money better. It’s a question not necessarily of spending less but of learning how to spend smarter.

Why Don’t Experts Like Layaway?

Usually, you pick out the items you want to place on layaway at your favorite store, make a down payment and pay a layaway fee of a few dollars. You pay on a schedule until the products are paid off, and then you take them home. Pretty easy, right?

But layaway gets a bad rap because of its limitations. Personal finance pro Dave Ramsey explains two major drawbacks:

  • You’re locked into your price. Even if an item goes on sale again — or you find it somewhere else cheaper — you’re stuck with the price you agreed to for your layaway plan.
  • Decide you don’t want those items anymore? You get your money back, but the retailer keeps your layaway fee and charges you a cancellation fee.

And then there’s a matter of comparing the layaway fee to the interest you’d pay if you used a credit card to take everything home right away. Louis Hyman explained it best in the New York Times:

Imagine a mother going to Wal-Mart on Oct. 17 and buying $100 worth of Christmas toys. She makes a down payment of $10 and pays a $5 service fee. Over the next two months she pays off the rest.

In effect, she is paying $5 in interest for a $90 loan for two months: the equivalent of a credit card with a 44 percent annual percentage rate, a level most of us would consider predatory.

OK, so layaway isn’t great for small purchases. But if you’re spending a few hundred dollars (or more) on holiday gifts, layaway might be an option for you.

PJ McIlvaine, a tech support specialist in Mt. Sinai, New York, fondly recalls using layaway to budget for holiday gifts in the late 1990s and early 2000s. She doesn’t recall having to pay a fee for programs at stores like Walmart and Target.

“It appealed to me because I could start my holiday shopping early and avoid the last minute hassle and aggravation of standing on line,” she said. “Also, I could finish the bulk of my shopping in one swoop.”

Even better: PJ’s husband often received a holiday bonus, which the couple used to pay off remaining layaway payments with one visit. For her family, layaway was a budgeting option that didn’t leave her waiting anxiously for that holiday bonus.

“I would absolutely do it again,” she said.

Want to Try Layaway? Here’s How to Do it Right

Ready to try layaway to budget for this holiday season? Here are some tips for doing it wisely:

  • Make your budget and shopping list before you even walk into a store. Do some quick math to determine your down payment costs (most stores charge $10 or 10% of your total, whichever is higher) and any layaway fees.
  • Read the fine print. Study each detail of the store’s layaway program before signing up. When you’re shopping on a budget, you don’t want any surprises. Note any cancellation fees or restocking fees that may apply if you don’t fulfill your payment plan.
  • Choose a store that lets you pay your layaway online. Many programs require you to come into the store to pay your tab, either at customer service or at the register. But another trip to the store means more temptation to buy. Skip the trip and pay from home! The Krazy Coupon Lady’s best layaway bets includes retailers that let you pay your balance online.

Your Turn: Have you ever paid for holiday gifts with a layaway program? Did you like this budgeting option?

Lisa Rowan is a writer, editor, and podcaster living in Baltimore. She hates Christmas creep.

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