Monday, May 24, 2010

The cost of financial illiteracy

Based on the fact that you're reading this post, you are not among the millions of financially illiterate in our country. However, you may know someone that struggles to understand the basics of interest, etc so perhaps this post will reach some of them.

I saw a great expose today on a Canadian company called EasyHome that offers electronics and furnishings to people without access to credit for "low, low weekly payments". In the US, Rent-A-Center is basically the same thing. If you can't afford that new 42" LCD why should you deprive your children the joy of Transformers 2 in HD when EasyHome can help keep you poor for low weekly payment of just $29/week?

There are laws in place to keep businesses from charging usury rates and most states cap interest rates at 29.9%. However, when you start looking into the details at places like EasyHome it's clear that they are gaming the system to charge people 200-400% interest on their leases. Take a TV that Amazon or Best Buy sells for $700. At Easyhome, they just say the base price is $2200, charge you 30% interest on top of that and that $700 TV now costs you $4,000. But wait, no one would fall for that, right? Well, guess, what the WEEKLY payment works out to? Just $25/week for 3 years.

These companies skirt the usury laws by claiming to be leasing centers or rental stores, but it's clear that they are preying on the poor and the uninformed.

For more interesting reading and viewing consider:

"Pay Now, Pay Later"

"EasyHome"

In the Canadian example, this couple is stuck paying $27/week for the next 3 years - over $3,600 for a USED GATEWAY laptop.

Cheers!

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