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My WealthFinancial Trap: Monthly Installment Payment

Posted May 2010

Why it is dangerous to pay in installments? Why the rich and poor people think differently?


When you see advertisement „Only $29,99 monthly for a new TV“, you need to ask yourself how much that TV will cost you? You also need to ask yourself how much you would pay if you buy it for cash? Finally, you need to ask yourself do you really need the new TV if you have the TV already?

Traders and advertised knows that consumers are prone to impulse purchase. They will buy something unplanned, simply because they have seen it. Also, the consumers like advertisements that say „only $.... monthly“. If they can afford this amount of only $XX per month they may buy it, without thinking how much they will pay in total.

This is the reason why advertisers often avoiding to show the full amount, but they advertise „low“ monthly installment. Still, it is very easy to calculate the full amount, by multiplying installment amount with the number of installments. If you do this calculation you will easily understand that the total amount is not that low. Usually it is much higher than the price that is regularly displayed for full cash payment.

The poor people want to get something now, but to pay later. They also do not want to know how much they will pay in total. They avoid the truth. They want to stay in the illusion that they can buy something even if they do not have the money.



The similar trick is used when you buy the product „Below the Price“. Mobile telephony operators are offering you very cheap mobile phones. But later on they charge you much more through the monthly bills. Buying the „cheap“ printer will appear to be really expensive investment, since toner cartridge that you get with the printer will run out soon, while the new toner cartridge cost as much as the printer you bought.

Research has shown the psychological difference in thinking between rich and poor people. Rich people want to know the full truth: What is the total price of the product? They also want to know is there any discount for cash payment.

The poor people want to get something now, but to pay later. They also do not want to know how much they will pay in total. They avoid the truth. They want to stay in the illusion that they can buy something even if they do not have the money. At the end, the people who have the money will buy something for less money, than the people who have less money.

 

 

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