
Rental America: Why the poor pay $4,150 for a $1,500 sofa - primelens
http://www.washingtonpost.com/news/storyline/wp/2014/10/16/she-bought-a-sofa-on-installment-payments-now-its-straining-her-life/?hpid=z1
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aliston
While this particular example applies largely to the poor, you could write a
similar article about the vast majority of Americans.

How about "Why engineers in the Bay Area pay 1 million for a 600k condo" or
"Why smart people pay 400k for a 150k education."

Fundamentally, the high price of the couch is really a reflection of the risk
made in the "loan." Americans are too leveraged and don't save enough across
the board. If credit were harder to come by, and the majority of loans were
made with the expectation that the borrow would actually pay off the loan, you
wouldn't end up with 4k couches. Also, I would imagine the apparent need to
keep up with the Joneses would be diminished because fewer people would be
driving the proverbial rent-to-own Mercedes.

~~~
diminoten
Non-poor people don't pay nearly as much interest as poor people, and as such,
generally wouldn't even pay $4,150 for a $1,500 sofa even if they did decide
to take out a loan to pay for it.

That's actually kind of the point of the whole article - that poor folks are
unlike other people in that they have no way of mitigating their risk in the
form of lump payments to creditors.

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gxs
You know, I hate to sound elitist or conceited or whatever word you may want
to use to describe the following statement, but it's true: there is a huge
element to these decisions that goes beyond education and background. At the
end of the day, it boils down to plain old reasoning ability.

I have a friend who is pretty well educated in a non stem field and is
decently successful (lower middle class).

We both drive the same car that is currently worth 9k (a car which he
shouldn't have gotten either, but I digress).

We spent an hour the other day debating why he shouldn't buy a brand new 22k
car that will save him 900 per year on gas.

For the life of me I just couldn't get him to see why the best decision
financially was to drive his current car into the ground.

His argument was literally, in 10 years my new car will be worth more than
yours. I was dumbfounded - I could not get him to see that it was coming at a
cost of an additional 13k up front. He said it in a "haha got you! - you
forgot about that!" kind of way.

I just gave up.

At what point do we just admit that no matter the education level, no matter
the background, some actors in the economy just won't make the most prudent
choice?

~~~
chrismcb
Are you sure the best decision financially is to drive the current car into
the ground? We don't have enough context toy make an informed decision. But
saving 1000+ a year in gas (that continues to go up) to have a brand new,
relatively maintenance free car for the next several years isn't necessarily a
horrible decision

~~~
bradleyland
It is incredibly difficult to beat the "drive it in to the ground" strategy on
a strict fiscal basis alone. Even a $22k car will come with a ~$400/month car
payment. That's $4,800/year in car repairs; which is a _lot_ of repairs.
That's almost 1370 gallons of gas (at around ~$3.50/gallon). You can drive
34,250 miles on that amount of gas if your current car averages around 25 MPG
(not hard if you already own a compact car). It really only starts making
sense when the older car requires so many repairs that it becomes unreliable.
At that point, it starts making you late to work, or causes inconveniences
that are untenable.

There are lots of reasons to buy a new car. I drive a new car every three
years, so I lease. Fiscally, the decision to drive a new car every three years
is about the worst decision you can make. I make that decision in the light of
day though. I'm able to afford it, and we still maintain a household savings
rate of 30%. Yes, I could increase that savings percentage even more by paying
cash for a car and driving it in to the ground, but I choose not to. I choose
the luxury of a new car in spite of its fiscal downsides.

------
Glyptodon
I think all the people comparing this to buying house are kind of off base
(though maybe less so in the Bay Area).

In most of the USA housing is a choice between spending $500 to $1500 a month
and building equity or spending the same amount while not building equity.
Obviously building equity is typically better even at a loss than spending the
same amount for nothing assuming you don't plan to move frequently, etc.

This is in no way, shape, or form comparable to a couch. A shelter _must_ be
had. A couch is 100% a luxury, and there are loads of substitute goods, like
bean bag chairs, or just plain cushions on the floor. Not to mention that all
of them are mostly worthless used (unlike a house).

------
pseudometa
This is somewhat similar to how nearly all of the middle-class buy houses...
by the time they finish paying off their mortgage they've spent twice as much
as the original list price. At least with homes, there is a chance for
property to increase in value.

~~~
aliston
The home itself is fundamentally a depreciating asset as well. I think theres
a reasonable argument to be made that the perception of real estate as an
asset with increasing value is largely inflated by 30 years of increased
leverage, decreasing interest rates, longer loan terms and decreased lending
standards. Back in the 1950s, the average loan-to-value on a home was about
50%. Somehow it has since become standard to leverage yourself 5:1 on a home
purchase, which for any other asset class would be kind of nuts!

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turar
This may sound offensive, but is buying a $1500 sofa really a good decision if
you're "poor"? I don't consider myself poor, and I bought a $500 sofa, it's
pretty nice and has worked well for many years. I also have a lot of good used
furniture that I've bought for almost nothing off Craigslist.

~~~
Karunamon
I don't understand how it's really "financially ignorant" to pay high interest
rates for the benefit of deferring costs over time? If your credit isn't
great, it takes a _long_ damn time to repair. These rental outfits both help
rebuild that credit and provide a valuable service, imo.

------
abbot2
A better question would be "why the poor buy a $1500 sofa"?

~~~
FLUX-YOU
>Normal families have sofas, she says, and you’ll do what it takes to feel
normal.

~~~
abbot2
Seriously? I don't consider myself poor by any standard, but I'll also think 5
times before buying a 1500 sofa. It's just stupidly expensive.

~~~
FLUX-YOU
I think that headline is misleading. In the article, they say it was $1500 for
a sofa and loveseat, which isn't bad if the material and construction is high
quality (who knows, Ashley Furniture is probably crap next to actual
craftsmanship).

------
bane
The truth is, almost everybody ends up financing something and paying a lot
more for it in the end than the sticker price. The trick is figuring out how
to either avoid financing if possible, or minimizing the extra that you pay
when you have to.

Even when you aren't explicitly financing something, people throw away huge
sums of money all the time when there are cheaper alternatives. For example,
how many of us pay rent for housing?

For non-optional things like shelter, this is harder to navigate. What makes
people scratch their heads about a sofa is that strictly speaking, you can get
by without a sofa. It's an optional purchase. It sucks not to have one, but
there's no "sofa" in Maslow's Hierarchy of needs. My parents in law come from
a culture where sitting furniture is a completely optional item for example
(Korea) and most people sit _and_ sleep on the floor perfectly fine.

I remember when I was first married, my wife and I were really desperately
poor, for at least a year we didn't have any furniture _at all_. Even after we
stopped being poor I don't think we bought a sofa for the first 4-5 years of
our marriage and then it was a triple discount coupon holiday sale sofa. 10
years later we still have that sofa and have no plans to get rid of it any
time soon.

Money's great, it can almost instantly eliminate all sorts of inconveniences,
and easy access to more money than you can effectively manage is a real
problem. Even relatively smart people, given absolutely free money (like
lottery winners) don't know how to deal with it.

------
dengnan
Old discussion on HN:
[https://news.ycombinator.com/item?id=8471786](https://news.ycombinator.com/item?id=8471786)

~~~
pyre
'old discussion' says it was posted '5 hours ago' heh

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DubiousPusher
This is a poor example of a real phenomenon.

I was raised in a family of four with an anual income around $14,000 a year.
Today, I'm an engineer with a base salary in the six figures. I can tell you
first hand, wealth gives you not just the ability to do more but the ability
to make the money you do have go further.

It's not the $4,000 sofas that strain poor people to the financial limit. It's
the hot water heater you have to put on a credit card instead of paying cash.
It's the groceries you pay twice as much for because you can't afford them in
bulk. It's the overdraft fees that make a $100 mistake into a $500 one. It's
the nickle and dime medical bills because you can't afford to address the root
cause of an affliction.

~~~
GuiA
Well, sure, but buying sofas and iPads at a 200%+ markup certainly can't help.

------
outside1234
This should really be titled "why the financially ignorant pay $4,150 for a
$1,500" \- you see this lack of financial smarts pretty much across the wealth
spectrum from sofas to McMansions.

------
tehwalrus
What is stopping an entrant going in at 50% APR rates, and competing with
these guys on the weekly price?

Or is the cost of doing business where 9/10 people default (mostly because you
charged them too much) just that high?

~~~
kansface
Do you think an ethical pay day loan business could exist? I tend to think
anyone with ethics wouldn't touch the industry in the first place.

> mostly because you charged them too much

Why don't you think both parties share the blame?

~~~
tehwalrus
I think there's a difference between charging 30-40% APR (double what a crappy
bank charges for a credit card, approx) and charging 4000% APR like Wonga.

Also note we're talking about different but related businesses - ludicrously
overcharging for payday loans is one thing, ludicrously overcharging for hire-
purchase is another. The second is less risky, assuming people don't trash
their own furniture/possessions.

Finally, no, I am not certain an ethical payday loans business can exist, but
I am certain an ethical loans business can exist. It's all a matter of
gradually finding a limit, where people stop ranting about how unethical it
is.

(to clarify - I am not actually a populist ethicist, I was merely speaking in
practical terms.)

------
bdamm
Most will turn up their noses for buying a sofa this way, and yet most folks
here will happily suffer just as shocking a cost in order to buy a house.

~~~
arbuge
Which is particularly ironic when you consider that the cost of the house
typically exceeds the cost of the furniture several times over.

~~~
SnowProblem
Unlike a couch though, you need a place to live. Is it cheaper to continue
renting until you can afford to buy outright? I thought the answer was no.

~~~
bane
Correct

[http://assayviaessay.blogspot.com/2014/04/rent-or-
buy.html](http://assayviaessay.blogspot.com/2014/04/rent-or-buy.html)

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gibrown
Off topic, but since there are a couple of "why would someone poor buy a $1500
sofa" I thought I would link to a really great article discussing this:
[http://talkingpointsmemo.com/cafe/why-do-poor-people-
waste-m...](http://talkingpointsmemo.com/cafe/why-do-poor-people-waste-money-
on-luxury-goods)

You can substitute sofa with iphone, designer clothes, BMW, etc.

------
nashashmi
This reminds of HBO comedian John Oliver talking about payday loans.

I kept thinking about this and got very emotional over it. So I came up with a
quote: Wealth is a beauty nurtured in savings so keep the choices you make on
how much you use limited to your priority needs.

------
dang
[https://hn.algolia.com/?q=rental+america#!/story/forever/0/r...](https://hn.algolia.com/?q=rental+america#!/story/forever/0/rental%20america)

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jtth
Perhaps the issue concerns why anyone would purchase a $1,500 sofa.

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wfjackson
I wish the government or charities helped these people out by educating them
about the various ways they can be frugal and the typical ways they get
fleeced by holding free seminars and giving out flyers/books.

Perhaps the tips in Reddit's /r/frugal can be made into a book and freely
distributed to such people?

There's an immense amount of money being spent on such folks, much of it from
taxpayer dollars and it still isn't very effective at lifting them from the
vicious cycle of poverty.

~~~
josu
Something like these?

[http://www.mymoney.gov](http://www.mymoney.gov)

[http://www.pfeg.org/](http://www.pfeg.org/)

[http://www.financialliteracy.gov.au/](http://www.financialliteracy.gov.au/)

[http://www.condusef.gob.mx/Revista/index.php/usuario-
intelig...](http://www.condusef.gob.mx/Revista/index.php/usuario-
inteligente/educacion-financiera)

[http://www.finanzasparatodos.es/](http://www.finanzasparatodos.es/)

Most of the governments have financial education programs in place. They just
don't seem to be that effective. My guess is that the answer to this has to
come from the private sector. A company that somehow creates the incentives
for these people to save instead of borrowing.

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autism_hurts
Why did this get reposted/ why was the previous hidden?

