K-Mart has a new ad: Pick out your Christmas presents today, pay a little now and a little as you go along, then pick up your paid-for presents in time for holiday giving. If we needed evidence of the constriction of consumer credit, here it is. K-Mart is advertising the layaway plan that department stores used for decades before the free flow of credit turned the layaway plan into a relic.
With Mastercard and Visa cards handed out like cheap candy, layaway plans had nearly disappeared. The old-fashioned method for budgeting--pay a few bucks each week on your purchases--made no sense to millions of customers who could take the goods home and pay a little each month forever after. For more than a decade, when I have taught 507(a)(7) priorities, I have had to explain these transactions to a roomful of students who have never even heard of pay-in-advance. (And special thanks to one of those students, Sydney Leavens, who recognized the connection to the K-Mart ad.)
Could this ad be an early sign of how purchasing will change in America? A Pay-Now, Buy-Later plan will undoubtedly constrict spending in the short term, but in the long-term it would mean that the money that now goes to interest, fees and interchange fees (about $107 billion in 2007) can be used to buy socks, haircuts, prescription drugs and a million other goods and services.
Retailers pay about $23 billion in interchange fees so that their customers can use credit cards. Today's retailers say they have no choice: so long as their competitors take credit cards, they must do the same or see their customers migrate elsewhere. But if credit availability contricts across the board for consumer, the long-term fallout for K-Mart and thousands of other retailers may not be all bad.
I realize the operative word is "long-term." If credit loosens up quickly, then cash-in-advance will be a temporary blip. And for retailers who can't survive the readjustment (and short-term loss of sales) from credit to cash, then the long-term readjustment doesn't mean much. But non-credit purchasing could be the wave of the future.
It could be an old-fashioned, new-wave lay-away Christmas.