Paying in Installments: “You won’t even feel it!”

A few years ago, I decided to budget 300 nis towards buying my wife a gift. After consulting with my cultured and knowledgeable daughter who recommended I buy earrings, I made my way to a store well-known for its creative and attractive jewelry. A very young and eager salesgirl met me at the door. I explained what my budget was and what I was looking for and she proceeded to lay out for me several pairs of earrings, ranging in price from 200-300 nis. As I contemplated my choice, and whilst my indecision was obvious, my hostess asked if I would like to see some necklaces. I said: “why not?”, so she set out for me some really gorgeous pieces. As my eye caught one of them, I inquired about the price. “Only 1300 nis”, she said. I retorted: “but I told you that my budget is 300, not 1300!” “No problem,” she continued: “I’ll give it to you in 12 payments – you won’t even feel it!”

The poor girl had no idea with whom she was dealing. I won’t detail the rest of our talk (I really did try to keep the lecture short); she never knew what hit her. But to keep a happy ending to this story, I did indeed buy a pair of earrings from her, and in the process left my business card on her table.

One of the illnesses and temptations of consumerism with which we all contend is the attraction of paying for goods or services in installments. When I first meet new clients, many do not make the connection that paying in installments is equivalent to taking a loan. If I ask whether they have any debts, they will not think to include the overall balance of installment loans. This is proof of our salesgirl’s maxim that “you won’t even feel it.” At the moment of purchase, this may be true. But if you do that 4 or 5 times over a few weeks, you suddenly owe 4 to 5 times more than you did after the first purchase. (The classic example is paying weekly in installments in the supermarket.) And that’s when you really do start to feel it.

The reason for this myopia is that people do not look ahead for more than a few weeks when planning financial steps. They foresee the monthly payment quite clearly, but the clouds seem to obscure the overall debt balance. This opacity creates an illusion that the debt is smaller than it is, and fails to put up a red flag in regard to making more purchases in installments. It also ignores the interest and linkage often attached to loans, which are less felt in the short term of monthly management.

Proper management requires a palpable realization of what our debts really are and what they will be one, two, six and twelve months ahead. This realization, if internalized, can help break us of the habit of paying in installments.

(Note: I have much more to share in regard to installments, but that’s for another blog post.)

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About the Author
"Heaven never decreed that you must live forever in debt." David made Aliyah from the U.S. in 1983. He worked in education and hi-tech prior to establishing BONUS Family Budget Counseling. He counsels families and groups on proper money management and Israeli consumerism.