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Are you looking for Free PD in this content area, one hour at a time, on your own time? Check out our On Demands over various behavioral finance topics.
If you want to become content expert and earn an NGPF certification, consider our Behavioral Finance Certification course, where you will learn more about how strategies such as choice architecture, used by the sellers from this blog post, influence our purchasing decisions.
This Consumer Reports video got me thinking about how this question can be structured as an activity to develop your students’ comparison shopping and Excel skills. Here’s the video:
First, let’s get the comparison shopping out of the way. I chose this washer-dryer pair advertised at one of the leading rent-to-own companies:
⟶ Our Budget or Bust Case Study from our Budgeting Unit will work well with this post.
How much would the washer-dryer pair cost if you could buy it upfront at this retailer?
Note the everyday low price noted on the top right (or Cash Price at bottom center) of $1,424.98. I wanted to see how that might compare if you tried to buy the same Maytag Centennial Washer and Dryer at a “big box” retailer. After a 30 second Google search, I came up with the following costs at one retailer:
Assuming that figures for rent-to-own and “big box” exclude taxes and delivery, the “big box” cash cost of $1,097 is 23% less than the cash cost at the rent to own. Why is this important? It shows that the rent-to-own customer is starting out with a handicap as they will be renting an item at an already inflated price.
What is the implied interest rate with the rent-to-own model, using the data for this washer-dryer pair?
Here are the assumptions to put into the model:
I created this spreadsheet (Note: Please make a copy of the spreadsheet before sharing with students) where students can adjust the interest rate assumption while trying to zero out the ending balance in month 24.
Spoiler alert: The answer is about 87%!!!!!
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Questions:
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Here’s another Rent-to-Own mini-activity using TVs instead of washer dryers!
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Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.
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