Should Christmas Clubs and Layaway Plans make a return?
This holiday season the bells of yesteryear are ringing as more and more retailers roll out old-fashioned layaway plans and Christmas Clubs. In reality, these cheery programs that pre-dated credit cards, allowed us to fulfill desires, while keeping us out of the black hole of credit card debt.
When I was a kid, perhaps a pre-teen and high schooler, my Grandma set up Christmas Club accounts for each of her grandchildren every year. She would diligently put away $10 a month for each of us beginning in February of each year. She would show us the little passbook savings account in our name on a regular basis. The booklet had either a big wreath or Santa on the front. Throughout the year, she would show us how the balance was growing. The teller at the bank made a notation with a pen each time a deposit was made. It was so exciting to see the balance go from $10 to $50 and eventually all the way up to $100. At Thanksgiving we got to go with Grandma to the bank to take the money out of the Christmas Club accounts. We were to use the money to buy Christmas presents for our brothers, sisters and parents. This would probably be politically incorrect today (c’mon a Christmas savings account not a “holiday” account!!) but it taught us not only the joy of saving (even though it wasn’t our money) and gave us the ability to give to others. I spent hours trying to figure out how to divvy up my $100 between family members and buy them the best present that I could.
The same feelings apply to layaway accounts. The summer before I started college, I saw this pair of really cool boots that I knew I had to take to Northwestern with me. Unfortunately, they were over $200 and that wasn’t within my budget and was way off the charts of what my parents would be willing to spend. The shoe salesman explained that I could put the boots on layaway and pay off a little each week until they were paid off. So I made my $10 down payment and each week, after getting my paycheck from my waitressing job, I would stop at the store and pay a little bit towards my new boots. I knew the exact pair was tucked safely away in the back of the store just waiting for me. By the end of the summer, I was able to pay for the boots, still save for college and eventually pack them into my bags for college. Little did I know that my “cool” boots were way too “country” for the preppy environment I had just entered. I spent the rest of the year wishing I had used my $200 to buy a wool sweater emblazoned with my initials.
The one thing that layaway plans did impress upon me was the ability to pay for something that I could obtain in the future. The difference, however, was that, unlike credit cards, you had to pay for the item before you received it. If everyone used layaway plans instead of a credit card today, it is possible that the financial situations of many families would be very different.
Millionaire Corner conducted research with investors this past month regarding layaway plans and Christmas clubs. Eighty two percent of investors over the age of 65 are familiar with Christmas Clubs but only 28 percent of those under the age of 40 are familiar with the concept. Only 5 percent have ever used them.
Layaway plans also lack familiarity and popularity. Only 7 percent of investors have ever used a layaway plan. Despite the fact that many retailers are rolling out layaway plans this year, few investors plan to use them.
There was merit in these old fashioned savings vehicles and credit offerings. They taught responsibility in a way that allowing your kid to use a credit card will never engender. I think one of my New Year’s Resolutions may be to set up Christmas Club accounts (my own private ones) for each of my kids next year. Of course, I will have to pay more fees to the bank than I put into the accounts…..
Catherine S. McBreen is President of Millionaire Corner. McBreen plans and develops content for Millionaire Corner. Catherine balances editorial content to meet the informational needs of both new and seasoned investors. She designs special monthly surveys on topical issues affecting the economic environment.
McBreen has a B.S. in speech communications from Northwestern University and a J.D. from DePail University College of Law. She is a member of the American Bar Association, the Illinois Bar Association, and the Chicago Bar Association.
Well-known for her expertise in the affluent and retirement arenas, McBreen is a frequent speaker at industry conferences. She has been quoted widely by the financial media, including The Financial Times, The Wall Street Journal, Research, Private Asset Management, On Wall Street, Reuters, Bloomberg News, The Dow Jones Newswires and Worth. Cathy has appeared as a guest on CNBC Closing Bell, First Business Morning News, Neal Cavuto at Fox Business News, ABC and CBS radio.
McBreen is co-author with Spectrem President George H. Walper, Jr. of the book "Get Rich, Stay Rich, Pass It On: The Wealth-Accumulation Secrets of America's Richest Families" (Portfolio, January 2008)
Catherine is the mother of four and is involved in many school and community events.