There’s truth to that old saying, “There’s no such thing as a free lunch.” After all, when was the last time you locked into a multi-year contract to get the free Android, or sipped vino at a tasting only to purchase the $40 bottle?
It’s easy to get sucked into the promise of freebies, because, as it turns out, we’re wired to.
“The limbic system, which is the most instinctive part of our brain, has two sections: one that fires up when you experience pain, and another that lights up when you receive a reward,” says CFP Jason Hull, CTO of myFinancialAnswers.com. “Whenever you get an item for free, you activate the reward center, whereas paying money stimulates the pain center.”
Hull explains that’s why snagging junk like key chains at a conference makes us illogically happy, or why we’ll wait in line for $3 ice cream on Ben & Jerry’s Free Cone Day.
“If you laid out the pros and cons of wasting an hour in line for a free cone, it doesn’t make economic sense,” Hull says. “You’d be better off working as a cashier at McDonald’s for an hour and earning enough money to buy two cones the following day.” But when faced the prospect of a reward, our limbic system hijacks our level-headedness and hones in on free—however absurd it may be.
“Offering something for free is a clever marketing tool, and it’s important to protect yourself as a consumer,” adds clinical and financial psychologist Mary Gresham, PhD. “Once in awhile, a legitimately great deal comes along, but you have to be very goal-focused, know the market price, and not get distracted.”
Here, we debunk the hype around these $0 opportunities, and shed light on how to (wisely) take advantage of them.
1. Free Trials
You probably think there’s no harm in enjoying the perks of a temporary Amazon Prime or Apple Music membership. And, of course, these companies make it ridiculously easy to sign up with seductive one-click offers.
“Then they automatically renew your subscription, inertia takes over, and you stay in because it’s too much trouble to cancel,” Gresham says.
Granted, it can be a good deal if you remember to cancel. “Before you accept, find out what the process to unsubscribe is, and then set a calendar reminder a few days before the trial runs out,” Hull says.
2. Free Enticements
Have you ever been offered a free night at a resort, plus a fabulous meal or show tickets—just for listening to why you should invest in a beachfront timeshare? If that sounds like a no-brainer, watch out.
“If you’re given something for free, it’s a human tendency to feel like you owe something in return,” Gresham says. “This is a manipulation tactic, and unless you’re very tough, you risk succumbing to their pitch out of a sense of obligation.”
In case you didn’t know, timeshares are terribly risky. “It’s not liquid, and you can almost never sell it,” Gresham says. “Plus, they generally charge exorbitant maintenance fees.”
On a smaller scale, the same principles apply to “free” samples salespeople offer to entice you inside their store or the “free gift, no purchase necessary” tactic.
Unless you’ve got a backbone of steel and can firmly tell the promoter you’re not interested in buying anything—in which case, indulge!—be wary of these approaches.
3. Free Shipping
The item you want costs $49.50, but get to $50, and you qualify for free shipping. What to do? If you’re like a lot of people, you’ll add to your cart. But throwing in $60 sandals is a recipe for overspending.
On the other hand, free shipping can be a smart technique if you buy something that’s only a couple of bucks, or that you were intending to purchase anyway.
Otherwise, “price the shipping in when comparison shopping,” Gresham says. Or, adds Hull, “Hold the item in your cart, and wait until you’ve amassed enough stuff that you actually need.”
4. Interest-Free Offers
If it sounds too good to be true, it probably is. You’ll see these financing offers at car dealerships, electronics retailers, and furniture stores, “but they usually have a kicker clause where, if you haven’t paid the entire balance by the end of the grace period, you have to pay a higher rate, backdated to the date of purchase,” Hull says. “Unless you have the cash available, it’s not worth the risk.”
As for 0-percent-interest credit cards, these have the potential to be a great strategy—if you’re careful and budget wisely. “Make sure you read the fine print,” Gresham says. “Often, the deal only applies to balance transfers; with a new purchase, you pay more. Or if you make a late payment, you’re reset to a much higher percentage.” Many also charge a fee for transferring balances, which can range from 3 to 5 percent of the balance.
5. BOGO Sales
The danger of buy-one-get-one deals is twofold: First, you might spring for something you don’t actually want, just because it sounds too good to pass up. “In this case, you need to make sure your spending is in line with your values,” Hull says. “Analyze what you could buy now versus what’s really important to you.”
For example, if you love travel, consider whether you’d rather spend $100 on a jeans promo or put it in your vacation fund. If you actually need jeans, the BOGO might be a good bet—just make sure you give it some thought before pulling the trigger.
Secondly, even if the BOGO is a steal, you might blow your budget on other, more expensive things in the store. “This is a pricing strategy called a loss leader,” Gresham says. “A retailer will take a hit on one item, but count on you buying more once you’re in the store.”
Unless you have the willpower to zero in on exactly what you need, and avoid other temptations, steer clear.
February 17, 2016