How do you spot the false economies?

Discovering false economies
By Student Blog

17 November 2016

Ever get the feeling you've been had? Always counting the last pennies in your pocket? You might have fallen into the trap of a false economy. We'll show you what to look out for and what to avoid!

Being a canny consumer means making informed decisions about what you buy, where you buy it, and what you are prepared to pay. So, how do you know which product or service is best for you? 

The option that is cheaper upfront could end up costing you more in the long run, and promotions offering big savings for bulk buys can leave you with products you simply don't need.

The way products are marketed often has as much to do with prestige, packaging and branding as it does with value or volume. Time Magazine recently published an article about miniature Coca-Cola cans - the cute, stylish packaging helped boost sales of the mini cans to 278% higher than those of regular cans in a trial marketing period.

Whether this was down to the attractive packaging, or the perception that a smaller fizzy drink is better for you than a larger one, the fact remains - consumers were prepared to pay 5.3¢ per ounce for Coke in mini cans, more than twice the price - 2.6¢ per ounce - for the same drink in 12-ounce cans. 

Whether you see this as a rip-off, or clever marketing, the fact remains - it's easy to get tricked into a false economy.

Watch the interest 

In an article by GoCompare, paying the minimum amount on your credit card each month is given as the leading example of a false economy - although monthly payments are manageable, the overall amount paid back, plus interest, will be much greater. 

While many people opt for a 0% interest offer when taking out a credit card, beware of the length of term of the offer - be certain to check how much interest you will be paying each month when the offer expires, and consider shopping around to get the best deal.

car insurance

Paying for car insurance in monthly instalments can also incur interest, as do other consumer credit schemes. Always read the terms and conditions carefully, and compare the cost of paying up front with the cost of paying in instalments. 

One option, if instalment payments incur a lot of interest, is to seek out a 0% interest credit card, and use that to pay for the whole balance, paying your debt off in instalments. That way you get the benefit of regular payments, but skip paying the interest charges.

While it can seem like spending money on nothing, insurance policies can be money-savers - the costs incurred when a holiday goes wrong, or a beloved pet becomes sick can be astronomical. 

In each case, you need to measure the risks against the expense, and choose an insurance package which won't break the bank, but will ensure cover if the need arises. Using a comparison site can help you figure out which product is best for you.

Quality versus savings

Special offers on perishable goods often mean a shorter shelf-life. Two-for-one or three-for-two offers can leave you with extra product you don't need. According to Love Food Hate Waste, almost 7 million tonnes of food are thrown away in the UK every year. 

The UK's laws about what information must be provided on labels, especially on food and drink, are very specific. Cheap or budget goods might contain ingredients which are less healthy, or even outright harmful - being informed about what you are buying and how it affects you is absolutely essential. 

It has another advantage, however: you can compare price by volume on the tickets in most supermarkets, chemists and other types of shop. This tiny print section of the shelf label will reveal cost per gram or ml, for example, and makes short work of comparing seven different food offers to find the best value! 

That cheap-as-chips tee-shirt or pair of leggings from a discount high-street retailer might seem like an unbelievable bargain, but often the cheap price reflects poor quality. What use is a cheap item if it can only be used a few times? When looking for savings, you might find better bargains from outlet stores, in seasonal sales, or from shops which are closing down, as opposed to shops which sell cheaper goods.

card

Beware of paying over the odds for branded goods when many outlets and chains will offer a cheaper, non-branded alternative with almost the same ingredients.

It is also worth reading the small print when thinking about purchasing a financial product - be sure to check for hidden charges, late payment fines, cancellation fees, and contractual obligations. 

Extracting yourself from a contract can be much more difficult than anticipated. If a cheaper option exists, there may be a very good reason why it is cheaper - and that can be a reason to snap that product up, or to leave it on the shelf. You won't know unless you read the label!

'Freemium' and bundles

When buying software products online, it pays to ask an expert before you commit to a purchase. While most antivirus packages will offer you a free or premium option, there is often no need to pay for the expanded service.

High street technology retailers might offer you a 'bundle' including premium software when buying a new computer - often, there are alternative products available for free online which will do the same job (or better).

This is also true when considering a package for your home broadband and television - you will need to weigh up what you watch, and on what channels, to decide whether to opt for a premium package from a service provider like Virgin or Sky, or whether it would be more cost effective to opt for 'Freeview' channels, and perhaps a subscription to a streaming service.

Remember, whether you are opting into a streaming service or a 0% credit card offer, to check when your free trial period ends. Often, billing will start automatically after a free trial period - so be sure you have picked the right option for you before deciding on what service suits you.

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  • CA Student blog

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