You don’t (want to) talk about money.

Most people don’t want to discuss their finances. But just as our bills don’t disappear when we don’t open them, financial woes won’t go away simply from wishing. So let’s talk money.

Despite the cliché that says the opposite, there are many articles (of various levels of sensationalism) circulating online about how money actually can buy happiness. For those who have struggled with financial instability, their conclusions come as no surprise.

In 2001, a University of Birmingham study asked a group of people about what events in their lives had the most negative impact on them. Spoiler alert: none of them said it was when they received large amounts of money. Going into debt was ranked the fifth most negative life event, the only things worse being the deaths of friends and family or spending time in jail.

More people probably have experience with debt than with wealth, so much more interesting than the question of whether earned money can provide happiness is the question of why debt makes your life so much worse.

0% Financing, 100% Debt

Although it’s clear that accruing debt has a major negative impact on life satisfaction, the number of loans and credit requests in Germany is growing every year. The amount of credit and the duration of the contracts are rising steadily as well.

“0% financing,” which is nothing more than a cleverly marketed installment loan, not only locks the customer in to a contract with their bank, but also to the credit broker. The customer gets two contracts for the price of one looming debt.

So why take this bad two-for-one deal? There are many reasons why someone would choose to go with financing. Of course, some people lack the desire to save up, but in many more cases, the desire to save is there but there is no time or insufficient income to build savings. In a bind like this, there’s simply no other option than to get a loan.

For example, household appliances such as washing machines or ovens are essential to many families’ everyday lives. If one of these breaks, many families can’t afford to simply go buy a new one, and it’s a major daily disruption to go without. In many cases such as this, there is no other option than to take the blow to your quality of life in accruing debt as a tradeoff for the convenience of having the device by paying in installments.

Here’s the catch with financing

For purchasing household appliances, furniture, and electronics, 0% financing in store is a popular option: it seems fast, cheap, and easy. It doesn’t feel like as large a decision as getting a loan from a bank, and lets you take the product home just like buying.

But consumer electronics often lose their value within a few years – both subjectively and materially.

The subjective value, how much you think your quality of life will be improved by having a new product, quickly declines as tech is replaced by newer models. A new smartphone is always mind-blowing at first, but after even the first few days becomes another daily affordance that isn’t appreciated as a miracle of technology. You throw it in your bag, sit on it on the couch, and even take it with you into the bathroom.

The material value of tech products also declines rapidly, since they age much more quickly than other appliances with planned obsolescence and depreciation built in to the upgrade life cycle. A smartphone, on average, will only be in use between one and a half to less than two years.

According to the Federal Environmental Agency, the useful lives of electronics are getting even shorter. But their quick replacement time has less to do with their material value than their subjective value. Over 60% of all functioning TVs are replaced just because the owner wants a newer one. While we could use cathode ray tube TVs for up to 12 years, most modern televisions are exchanged after an average of 6.

And smartphones are replaced even faster, on average every two years. Imagine you get your hands on the latest iPhone by financing. For the lowest rate possible, you agree to a period of 60 months. That’s the next 5 years. One year in, Apple releases a new iPhone. After two years, you want a new one anyways. But you’re stuck paying for another three? How does that make sense?

Obviously financing is incompatible with the amount of time you actually want to keep a device like a smartphone. You keep paying the same amount for years, even as the subjective and material value decreases. The only way to break the cycle is to buy it outright and worry about reselling it, where you still face depreciation costs – or, simply rent it.

Long-term debt

Many think that you’re only in debt when you can’t make these monthly payments and comfortably pay for other things in your life. But in reality, you’re in debt as soon as you agree to financing. Making any additional payments that are outside of your normal budgeting for your bills and expenses could cause missed payments and incur fees, leading to a state of indebtedness that’s hard to dig yourself out of. One in ten adults in Germany face this problem already.

Lower rates over longer periods of time may seem attractive at first, but if your budget isn’t set for the next 5 years (and whose is?) they pose a serious risk. Even if you have planned your finances down to the smallest detail, life can throw you a curveball. Illness, injury, or changing careers for any reason can majorly disrupt your financial stability. And your financier doesn’t care that you can no longer afford what you agreed to years before. So it pays to be flexible.

Renting as the new alternative to financing

An alternative, both to financing and to paying full price to buy new devices, is to rent. The biggest disadvantage of financing is putting yourself in debt via contract to the bank, the dealer, and committing for a long period of time. If you rent your tech, you’re bound only to the time you agree to rent it, which can be between one and 12 months, depending on your needs. This keeps you more flexible and in control of your financial future.

In fact, renting doesn’t only have financial benefits. According to the Federal Environmental Agency, alternatives to purchasing such as renting can significantly extend the useful life of consumer electronics. If less people are buying and trashing their devices prematurely, electronic waste is reduced.

So if you’re not satisfied enough with your newfound financial freedom by choosing to rent instead of financing, you can take comfort in the fact that at the same time you are doing your part in reducing the planet’s e-waste landfills.

About Grover:
Grover is a startup from Berlin, on a mission to give more people access to technology through flexible rental plans since 2015.


Sources

The life events inventory: Re-scaling based on an occupational sample. Spurgeon, A. Jackson, C. A. Beach, J. R.

Einfluss der Nutzungsdauer von Produkten auf ihre Umweltwirkung: Schaffung einer Informationsgrundlage und Entwicklung von Strategien gegen „Obsoleszenz“

Business Insider Deutschland, People are holding on to their smartphones longer

Statista, Average replacement cycle length for smartphones worldwide in 2017, by region (in months)