Are you MONEY BLIND?

Money Blind copy

In the United Kingdom we are bombarded with television advertisements designed to push us into spending money. Are you bewitched by those offers? Does the interest free, buy now, pay later idea appeal to you? Do you believe you are getting good value by buying the half price or buy one, get one free (BOGOFF) offers? Do you really believe that you are getting something for nothing from those gambling advertisements when they say pay £10 and play £50?

You do? Then you are definitely MONEY BLIND. Why?

Firstly, there is no such thing as getting something for nothing, unless someone gives you something for which you do not have to pay a single penny, now or in the future, or ever.

Secondly, any business needs to cover its cost. That is a fundamental rule in any business. There are expenses involved in running a business. Stock, warehousing, energy, staff, delivery, and clerical supplies and equipment needs all must be paid for (Do I really need to tell you that?). No business can provide these things at no cost, even family run businesses.

When you see a company offering buy one, get one free (BOGOFF – a very apt acronym in my opinion) they can only do this if the total cost of the two items are included in the price you pay. They are not giving you the second item for free. Why would they?

Let us take an example:
You are a double glazing retailer. You buy 100 windows at £100 each, total cost £10,000. In order to make a profit the cost of every window must exceed £100. In order to offer one free, the minimum that can be charged for the two windows is £200, but that would leave no profit for the retailer, so the total cost of the two windows must exceed £200, say £300 (or any figure above £200). In this case the retailer profits by at least £100 per window, before fitting costs are calculated.

The reality is that you have paid for the total cost of the two windows, i.e. you have received nothing for free at that stage. You would also be charged for fitting. Window fitters do not work for nothing. In order for the fitters to be paid for their services and make a profit, they need to charge the window retailer, who will in turn pass that cost on to you. If the fitters work for the retailer, their employment and travel costs will need to be met by the retailer. The retailer cannot afford to employ fitters for the sole service of free fitting. You will be asked to pay the total cost of the windows and fitting and that is what the retailer will advertise as a Buy one get one free deal. What have you received for free?

Now let us look at Buy now, pay later. A furniture retailer is offering 4 years interest free credit on its range of sofas in a half price sale. How can they afford to do that? The first thing to remember is that they are not doing you a service. Think of your payments as a savings scheme in a bank. You pay say £25 a month into a bank. That is a guaranteed income for the bank, or the retailer. Buying a sofa may be a lot more use to you than opening a bank account and saving £25 a month if you need a new sofa, or you just want one, but do not necessarily need one. The furniture retailer has you as a client for the next four years. Unless you pay off the balance early you cannot escape them.

This is a psychological trick which seems to work well. What they (perhaps) did was persuade you (with their hype) to buy a new sofa when you may not really have needed one, and tied up your finances with them for four long years in the hope that you will buy your next sofa from them. You will only benefit from this trick if you are on a low income and are not able to pay up front for a sofa. There is no disputing the benefit to the lower paid and I do not wish to discourage their use of such services.

The intention of the retailer is to keep their company name in the forefront of your mind on a monthly basis. Anyone who manages their finances or can afford to part with large sums of money as desired will know that it is better to save up the cost of a new sofa and then buy it. Whether or not you pay interest, if you take advantage of the interest free over four years option on your half price furniture, you will be in hock for the next four years. Do you really want that if you do not really need to do it?

Window shopping is great fun and the temptation to buy something in a sale which you do not need is very high when you think you are receiving a benefit, i.e. interest free credit. However, again, the retailer needs to profit from the sale so as you are paying back the cost of the sofa you buy over a four year period there is a price to be paid for this service and it will be added on somehow to the price you pay, though this may not be evident at the time.

Invariably the price tends to be lack of perceived quality of the goods you buy. A sofa advertised at £1,000 for 28 days and then reduced to £500 in a sale must be of good quality must it not? To make a profit which can be accounted for each month, as with the double glazed window retailer, the furniture retailer needs to add to the price of each sofa, the cost of the interest free service it is providing. The reality is that the sofa is only worth £500 (The retailer probably paid less in order to make a profit). In all reality if a sofa costs £1000 to make and this is what the retailer paid for it, it needs to be sold for at least £1000 in order for the retailer to break even.

Half price does not mean that you are getting a good quality item for half the price it is worth. What it means is that you are paying above the value the retailer paid to the manufacturer or wholesaler, and the retailer still makes a profit. From a purely moral perspective, if retailers can afford to sell an item at half price in a sale, why advertise it at double the price in the weeks prior to the sale? Simple. The retailer wants you to THINK you are getting a bargain. You probably are not getting the good quality bargain you think you are!

The same principles apply to the gambling advertisement pay £10 and play with £50. Get real! Who gives away £40 for every £10 without wanting something in return?

The advertisement is just another psychological trick to persuade you to part with £10 and possibly become so hooked by gambling that you will become addicted and spend more than the £40 credit initially supplied to you. Especially if you actually win something before you have spent the extra £40 (which you will probably lose after you have gambled on to more than £50). Gambling sites warn you to play responsibly in their advertisement but if you are weak enough to believe the hype, you probably will not. They are in this business to make a profit, not to give away money. My advice to those who find themselves unable to resist the £10 play £50 offer is, play £50 and then STOP, if you can!

Are you MONEY BLIND?

© VWSelburn 2015

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