MONEY holiday shopping

Why Gift Cards Are a Crime Against Christmas

rack of gift cards
Sarina Finkelstein

The act of gift-giving is an act of affection. Show a little effort.

Whether you celebrate Christmas, Chanukkah, Kwanzaa, or all or none of the above, the holidays are always about one thing: showing your family and friends how much you care.

That’s why the average person spends 14 hours shopping for gifts for their loved ones. That’s why kids scrape together $400 to fly across the country to spend Christmas Eve with their cousins in Cincinnati. That’s why husbands watch Love Actually.

The holidays are a time to say to your family and friends, “Although you drive me crazy all year round, my life would be empty without you.” But that’s weird, so you buy your mom a stupid embroidered pillow that says it for you.

Gift cards, on the other hand, aren’t about any of that. Gift cards are about efficiency. Gift cards are about corporate profit. Gift cards degrade the entire exercise of gifting. (Unless you are my colleague Jake Davidson, whose impassioned defense of this deplorable practice you can read here.)

A gift card says, “I couldn’t be bothered to think of you this holiday season; help yourself to exactly $25 worth of crap from Target.”

Gift cards are a crime against Christmas.

Let’s start with the basic etiquette problem. The first rule of gift giving is, don’t say how much you paid for your gift. Simple. So why get a gift receipt for one person, then hand the next person a gift card emblazoned with the exact amount of money you spent? You’ve just put a definitive monetary value on your relationship. When did we decide this was an acceptable social practice?

I know, I know—it’s hard to find thoughtful gifts for everyone on your list. But don’t think your friend will do a better job. It’s even more difficult for people to give good gifts to themselves. Here’s why: Researchers have found that when people are given “play money” like gift cards, they’re more likely to spend it on stuff they don’t need. In fact, they’re more likely to overspend. CEB Towers found that 65% of gift card users spend 38% more than the value of the card.

Alternatively, your gift card may sit, unused, in your loved one’s wallet or junk drawer. Industry insiders call this “spillage,” and companies can count on American consumers to spill almost $1 billion in gift card balances this year. Believe it or not, that’s down 88% from what it used to be, before Congress passed the Card Act, which put limits on expiration dates and inactivity fees.

And what happens to the money on unwanted gift cards? Obviously the retailer profits, but the Wall Street Journal has also reported that states in dire financial straits have tried to seize the value of unused gift cards using statutes that allow states to collect “abandoned property.” (You can check your state’s laws here.) In other words, buy a Target gift card that your friend never uses, and you’ve essentially given a gift to Target and/or your governor.

The worst are the general-purpose cards that you can spend anywhere. First of all, why didn’t you just give cash? Second, these “gift cards” aren’t actually gift cards in a legal sense. They’re prepaid debit cards, and they’re not subject to the same consumer protections as either gift cards or real credit cards. That means general purpose cards can come loaded with activation fees, inactivity fees, and other fees that degrade the value of the card.

And finally, if you go through all the hassle of finding a personalized gift for your loved one and then he doesn’t like it—so what? The act of giving is an act of affection. It’s not meant to be an efficient way of allocating goods. The Three Wise Men gave baby Jesus gold, frankincense and myrrh. Did a new mother, her betrothed, and the infant Son of God really need aromatic resin as they were fleeing persecution? Probably not. But that’s why the Three Wise Men were wiser than you.

COUNTERPOINT: Why Gift Cards Are The Only Present That Makes Sense

MONEY Shopping

Why All Those Great Holiday Deals Aren’t Really Great Deals

deflated balloon saying "Sale Now On"
MONEY (photo illustration)—Kutay Tanir/Getty (string); Adrian Turner/Alamy (balloon)

Sale prices are faker than ever this holiday season, as retailers openly admit that no one buys items at the ridiculously inflated "regular" or "suggested" amounts listed on price tags.

When seemingly everything is always on sale, is anything really on sale?

That’s a question that any savvy, value-oriented shopper must ask from time to time—and especially during the annual holiday shopping season frenzy, when it’s routine to see entire stores discounted by 40% or 50%. When such markdowns are a dime a dozen, who is foolish enough to actually buy anything at full price?

The answer could very well be no one. Something called “price anchoring” is a widely employed tactic in the retail world. Basically, the concept involves the establishment of a high price anchor, which locks into place a perception of value. You’ve probably seen tens of thousands of these anchors, in the form of “list,” “regular,” “original,” “suggested,” or “compare to” amounts shown on retailer websites or price tags. Anchor prices are set intentionally high, not with the idea that consumers will actually pay the inflated prices, but so that the retailer can create the perception of a tremendous deal when the item is inevitably placed “on sale.”

For example, picture a sweater listed with an original price of $100. When it’s placed “on sale” for $50, that seems like quite a deal—a far, far better deal than if the original price were listed at $55 or $60. All along, however, the store selling these sweaters has been planning on getting around $50 apiece for them, and it would probably make a profit even if it sold them for $25 each—which the store surely will during after-Christmas sales.

There’s nothing new about price anchoring. What is new—and pretty darn galling among consumers who expect more pricing transparency—is that in today’s promotion-heavy retail world, “original” prices appear to be getting exponentially more inflated. What’s more, retailers aren’t even pretending that a single customer ever paid its “regular” or “original” prices for anything.

In a new New York Times column, Farhad Manjoo wades into this murky world, trying to figure out how shoppers can evaluate whether or not a deal is a deal when seemingly everything is presented as one. What he reports, among other things, is that this season in particular has seen an “explosion of less-than-stellar deals advertised on the web,” in which there’s really nothing special about all but a very few of the sale prices available on Black Friday and other supposedly amazing days for bargains.

While nearly all retailers engage in the practice of inflating list prices more or less with the sole purpose of making discounts seem more impressive, a Macy’s spokesperson openly admitted that it came up with its original prices “based on many different factors, including the cost of the item, overhead, benefits we offer … as well as our ability to offer the item at a lower price during sale events.” Macy’s also pointed out some fine print on its website alerting shoppers of the following:

“Regular” and “Original” prices are offering prices that may not have resulted in actual sales, and some “Original” prices may not have been in effect during the past 90 days.

Holiday season sales and discounts are presented as being very special, but in fact there’s often nothing special about them—because in all likelihood, the only purchases occur when these items are “on sale.” If a price exists that no one ever pays, it shouldn’t be referred to as a “regular” or “original” price. It could be described by another term: a fake price.

There was a lot of discussion about the topic of fake pricing back in early 2012, when J.C. Penney tried to shake up its business model, in which more than 99% of its sales were below list price, and items were routinely marked down by 50% or 60%. J.C. Penney’s attempt to get rid of such extreme discounting and offer fair prices from the get-go failed miserably, at least partly because shoppers are compelled to buy more when retailers use the ruse of inflated price anchoring. And now we’re left in a situation in which sales are ubiquitous, both sale and original prices are arguably more meaningless than ever, and it’s never been more difficult to tell when a deal is actually a deal.

To some extent, shoppers seem to be aware of all of this. Some of the reason that Black Friday purchases were down this year is that the majority of consumers felt that Black Friday sales are meaningless because they assumed—rightly so—that there would be “more sales throughout the holidays.”

TIME Toys

Find Out Which Holiday Toy Is Most Popular in Your State

eBay made a map that tracks trending toys

As the holidays approach, eBay decided to make the torture that is toy shopping slightly easier by creating an interactive map that identifies the most popular toys in every state. (Because you know kids want to stay on trend this holiday season).

While California is all about the video game Call of Duty, North Carolina kids lean more towards Frozen-themed puzzle sets. Click on your state in the interactive map below to see the most popular gifts near you:

The information was gathered based on the number of items sold on eBay per state during the week of Nov. 10.

More: The Top 10 Toys of 2014

MONEY Shopping

You May Already Be Too Late for the Hottest Holiday Toys

141210_EM_HottestToys
If your kid wants Disney's Frozen Castle & Ice Palace Playset, let's hope you bought it already. Richard Drew—AP

Favorites from Frozen, Legos, and more are gone from store shelves or going fast. Expect to pay up if you don't want to disappoint.

If you still have Disney’s Frozen Castle and Ice Palace Playset on your holiday gift list this year, you may already be out of luck.

With Christmas approaching, the $119 toy—made by Mattel Inc—is sold out. Of course, you can find it at resellers for about $225 and even as high as $700 on eBay. There are still plenty of other Frozen-themed toys available—but only for now.

Industry analysts, poring over results from the Thanksgiving holiday week, say the hottest 25 toys have already hit their price lows and will only get more expensive as Christmas nears and the remaining inventory flies off stores’ shelves.

The silver lining? Retailers made a huge bet on toy inventory this holiday season—ordering twice as many shipments of Legos as last year, for instance, according to research firm Panjiva.

Expect fierce price competition at major retailers like Wal-Mart Stores Inc and Target Corp, which carry thousands of toys, notes Jim Silver, editor-in-chief of Time to Play Magazine.

“There will be huge promotions going on,” he predicts.

The sales will not be nationwide shopping events like Black Friday, but will pop up sporadically, culminating in major sales on Dec. 20, the Saturday before Christmas which experts expect to be an extremely heavy shopping day.

“One by one, either loudly or quietly, they will be rolling out some amazing deals,” says Panjiva CEO Josh Green.

Early Birds Get Hot Toys

Consumers love sales, but Silver notes they may be very disappointed if they can’t find the hottest toys.

Besides the sold-out Frozen Castle, there are 12 to 15 items which are currently hard to find, including the Max Tow Truck. It is listed currently around $128 on Amazon.com, depending on color—well above its list price of $59.99. Another hot item is the Imaginext Supernova Battle Rover—currently available for $109.99 at Toys R Us, slightly below the list price of $119.

There are also about 25 to 30 toys that will sell out in the next two weeks, Silver says, especially the most popular new toys in the Lego, Barbie, My Little Pony, FurReal Friend, and Nerf lines.

Toys with a movie or popular culture tie-in drive demand, while interactive pets tend to be short-lived fads (think Zhu Zhu Pets or Furby).

“There are clear bets by retailers—orders for Frozen toys and My Little Pony toys are up massively versus 2013,” says Green.

Most hot toys hit their price lows on Cyber Monday, according to data firm MarketTrack. This year, for example, the FurReal Friend Get Up & GoGo dog, which has a manufacturer’s suggested retail price of $59.99, was being offered for $49.99 at most stores in early November. It went down to $39 just before Thanksgiving and hit $27 on Amazon on Cyber Monday.

The very next day, the dog, which responds to commands from a remote-control leash, was back up to $39. The price is now fluctuating at most stores because of limited supply.

Similarly, the My Little Pony Friendship Rainbow Kingdom Playset, which lists at $39.99, was on sale for $35 at Target on Black Friday and bottomed out at $19.99 on Cyber Monday on Amazon for a half-price sale. It is now back up to $34 at Wal-Mart and Toys R Us.

What should shoppers do if they want the hottest toys?

“Grab the hot items early and then get bargain toys when you can,” Silver says. But you may have to wait until next year to employ this strategy.

 

MONEY Shopping

Controversial Abercrombie CEO Steps Down

Michael S. Jeffries, chairman and CEO of Abercrombie & Fitch.
Michael S. Jeffries, former CEO of Abercrombie & Fitch. Mark Lennihan—AP

The CEO who called his brand "exclusionary" and only for "cool kids" is retiring.

Michael Jeffries, CEO of Abercrombie & Fitch, is retiring effective immediately, the clothing retailer announced on Tuesday.

Jeffries, who made headlines with tone-deaf comments about the company’s business practices, was relieved of his duties as chairman in January after investors became dissatisfied with his leadership.

Abercrombie stock—which rose more than 6% on the news—is down more than 60% from its highs in 2006-2007 and down almost 20% in the last year.

Jeffries, who during his 20-year tenure with the company turned it into a trendy powerhouse with more than $1 billion in sales, took heat in recent years for failing to keep up with “fast fashion” brands like Forever 21 and Zara and falling out of favor with its primary teen demographic. But the now-former CEO also tarnished the brand through a series of poorly conceived public statements and business decisions that alienated potential customers.

In an infamous 2006 interview with Salon, Jeffries bragged:

In every school there are the cool and popular kids, and then there are the not-so-cool kids. Candidly, we go after the cool kids… A lot of people don’t belong [in our clothes], and they can’t belong. Are we exclusionary? Absolutely.

And:

That’s why we hire good-looking people in our stores. Because good-looking people attract other good-looking people, and we want to market to cool, good-looking people. We don’t market to anyone other than that.

That interview later resurfaced in 2013, along with news that Abercrombie was refusing to offer plus-size clothing, even as competitors like H&M began to make their sizing more inclusive. Together, the revelations caused renewed backlash against the brand.

According to the company’s announcement, a management team led by Executive Chairman Arthur Martinez will manage the company until a new CEO is appointed.

 

MONEY Shopping

How to Get the Best Prices on Holiday Gifts Every Time

Stack of coins on top of computer mouse
David Muir—Getty Images

These online tools can save you big money on holiday shopping

After a lackluster Black Friday (and a less-lackluster-but-still-not-great Cyber Monday) it looks like Americans still have plenty of holiday shopping ahead of them. Indeed, many shoppers now assume that the best deals are likely to appear weeks after the frenzied launch of the shopping season has passed. And they are probably right.

But with sales so ubiquitous throughout December, it’s hard to know if you’re actually getting a bargain at any given moment and at any given store or website. Luckily, using one of these free online tools can ensure that you always get a solid deal.

In-person shopping

Arguably, there’s no longer a compelling reason to leave your home (or even your bed) to shop. But if you prefer to hold an item in your hands before you buy, you like to come across gift ideas via serendipity, or you simply enjoy the thrill of the hunt, you still might find yourself in brick-and-mortar stores at holiday time.

Whatever the reason, use The Find to make sure you’re getting a decent price before you pull out your wallet. It’s true that many apps let you scan products inside a store to compare prices at other retailers, both brick-and-mortar and online. I like The Find best because it usually cross-checks more retailers than the competition (it’s the only price-comparison tool I’ve seen that includes Amazon results, other than Amazon’s own app) and it saves your scans so you can view them later when you get back to a computer. The Find also works on both iOS and Android, making it available to most shoppers.

RetailMeNot is useful for a different reason: It will show you a selection of the latest deals, a map of coupons for nearby stores, and allow you to search for specific store coupons. You can save these deals right in the app and then use them at checkout. RetailMeNot also shows online offers for a particular store right next to the in-store deals, so you’ll know whether it’s better to buy in person or over the web.

Many stores have their own app that comes loaded with coupons, deals, and other ways to save. Walmart’s Savings Catcher, for example, lets shoppers scan their receipts and then get instant rebates if another store offers the same item at a cheaper price. Target’s Cartwheel app gives customers instant coupons that they can then apply to their purchase. If you’re about to go shopping, search your phone’s app store and see if your retailer of choice has their own official app that offers similar deals.

Online shopping

Make no mistake: The apps listed above can ensure you’re getting a competitive price — but they can’t always get you the best price. For that, or something close to it, you probably have to shop from home on your computer, and it helps if you also monitor prices, deals, and coupons over time.

PriceBlink, for example, tracks the competition as you shop in real time. This browser extension automatically recognizes that you’re looking at a product and shows you a list of competing prices right on the same page. See a better deal? Just click and you’re there. It also alerts you to any coupons or deals it detects.

PriceBlink

Maybe you already found the best available price on the web, but aren’t sure whether to buy now or wait for an even better deal? That’s the kind of first-world anxiety TrackIf exists to treat. This website allows you to set price alerts on any product, and will email you if the price drops any lower. It even comes with a handy browser extension that will show you a product’s recent price history so you’ll know whether you’re getting the best price.

TrackIf

Coupons are another great way to save money, but most people don’t use them because it’s annoying to go around the web hunting down the right codes. Coupons at Checkout addresses that by making coupons pretty much effortless. Just install the browser extension and it will automatically offer you relevant coupon codes when you go to checkout at an online retailer.

Coupons at Checkout

 

MONEY Shopping

Why You’re Shopping More for Yourself This Holiday Season

woman trying on shoes at store
Jason Hetherington—Getty Images

Is that giant TV in your shopping cart a gift—or for you? With more people snapping up holiday deals for themselves, retailers are starting to cater to these self-gifters.

Jill Bascou looked like a typical holiday gift shopper standing in line on Thanksgiving Day shortly after the Target in Marlton, New Jersey opened at 6 p.m.

Except she wasn’t buying for other people.

The 39-year-old was waiting to get herself an iPad. In her cart was the xBox her husband had been coveting, and her father was in another part of the store hunting down a giant, cheap TV—for himself.

Retailers call this self-gifting. Look at a major store’s circular advertising holiday gifts—from the $5 toasters at Kohl’s to a $279 Dyson vacuum at Target—and you’ll see the top draws are items people typically buy for themselves.

Marshal Cohen, chief retail analyst at NPD Group, started tracking the trend of self-gifting six years ago, after interviewing a shopper on Black Friday at a Macy’s.

The woman had a huge pile of clothes over one arm and a smaller pile on her other. Cohen was surprised to learn that woman was buying the big pile for herself. Her mother and sister were the designated recipients of the other pile.

Now 30% of purchases over the Thanksgiving holiday are attributed to self-gifting, Cohen says. Surveys from the National Retail Federation bear this out, showing that 77% of shoppers took advantage of discounts to buy for themselves over the holiday weekend.

Toys are the obvious exception, but almost everything else—the TVs, the home goods, even the clothing—are items that people are often buying for themselves.

Retailers have been catching on, adjusting inventories and messaging. Kathy Grannis, spokesperson for the NRF, points to a pop-up gift tag ad recently on Gap’s website that read “From Us to You,” and was clearly meant to engage self-gifters.

For clothing retailers, Grannis says the enticements to shoppers are often in the form of a significant discount off the whole store. Old Navy offered half off everything on Thanksgiving Day, which drew Sarita Henriquez, 36, of Burlington, New Jersey, to shop for herself, with no set spending limit in mind.

“I’m being greedy this year,” Henriquez said as she waited in her car for the store to open at 4 p.m.

“I hear self-gifting reported as greediness, but there’s really more nuance than that,” says Kit Yarrow, a consumer psychologist and author of Decoding the New Consumer Mind.

Yarrow breaks down self-gifting holiday shoppers to three types: those buying special things like outfits and decor in order to be more social; those delaying purchases because they are expecting bargains, and those who are buying on impulse based on what’s available.

Impulse buyers are the key target for retailers’ special doorbusters. These are folks like the Hartman brothers, (Ed, 25, Shawn, 24, and Tyler, 21) who, while visiting family for Thanksgiving, each waited for cheap TVs at a Best Buy near Cherry Hill, N.J. to put in their own homes.

Cohen’s advice for shoppers who missed out on the early sales and are still waiting for big discounts: “Be patient and wait for the price to come to you.”

Don’t obsess over getting the absolute rock-bottom prices if it means delaying what you want, Cohen adds. You can always return an item if you find it for less and try to get the store to price match—as long as you have your receipt.

And just wait until you see next year’s sales.

“Retailers will figure this out,” says Cohen. And then Thanksgiving week will be even more about self-gifting, “and then there will be another set of doorbusters for later in December.”

MONEY Holidays

8 Smart Ways to Save When Buying Holiday Gifts for a Big Family

Buying christmas presents for a big family
Vstock LLC—Getty Images

You've made your list, checked it twice, and—my god, are there really that many names on it?! Keep your budget from being scrooged by your generosity with these strategies.

If you’ve got a lot of people to buy for, you’re probably used to watching your holiday budget spiral out of control.

The costs of purchasing presents for a long list adds up fast. The average American expects to spend $720 this year, according to a Gallup poll, and a quarter of people will spend more than $1,000. If you’ve got a huge extended family or a big coterie of gift-exchanging friends, you may have found that your own expenses surpass even that not-so-grand figure.

And many people embrace the giving spirit and are generous to a fault: Nearly four in 10 people admit to feeling pressured to spend more than they can afford during the holiday season.

To help spare you some pain when January’s credit card bill arrives, MONEY asked a few smart mom bloggers to share some of the cost-cutting strategies they use for their own gift giving. Cue the elves!

1. Cut Out the Adults

“Last year we agreed with my brother and sister-in-law to only exchange gifts for the kids. It was the start of something wonderful. We have agreed to do it again this year, and I also reached out to another family-in-law this year to do the same. We have reduced our present load by at least four, saving about $150 to $200—as well as the weeks-long process of my husband mulling over the perfect present while vetoing everything I suggest!” —Elissha Park, The Broke Mom’s Guide to Everything

2. Rotate Recipients

“On one side of the family, we rotate between the four siblings and their families as to whom we give gifts. My three kids enjoy coming up with a theme and putting together a ‘family gift’ for their cousins.”—Gina Lincicum, MoneywiseMoms

3. Agree to Get Crafty

“On the other side of our family, we do homemade gifts—still sticking to a dollar amount because it’s easy to overspend even with craft supplies. These have been some of our family’s favorite gifts, like the CDs of favorite kid songs my son made for his uncles when they became new dads!” —Gina Lincicum, MoneywiseMoms

4. Think In Tiers

“It’s so easy to go overboard from year to year. That’s why I use a three-tiered gift-giving system: Tier 1 is family. We do gift exchanges with each individual person in our immediate family, and set a budget for each person. Tier 2 is friends. We typically do a single-family gift for our friends, like movie tickets with free babysitting or a fun new game for them to play together. Tier 3 is neighbors and co-workers. I create homemade chocolate goodies in handmade packages.

Once I establish my budgets for each tier and the people in them, I create a cash envelope for that tier. I only spend cash on what I buy for gifts, supplies and even wrapping paper. Once the cash in the envelope is gone, it’s gone!” —Kim Anderson, Thrifty Little Mom

5. Focus on Experiences

“Meaningful gifts don’t have to be extravagant and costly. Consider giving experience gifts—whether that means buying tickets for a ball game or making plans to take the kids to a matinee movie. Sometimes, the most remembered gifts are those that took thought, not money.” —Crystal Paine, Money Saving Mom

6. Pick One and Be Done

“We often employ the Secret Santa method for the adults in our extended family, because with all the siblings and parents things can add up pretty quickly! Rather than try to spend $50 on everyone in each family—which would total $500—we each pick one name to buy for, with a set price range of $100 to $150 per person. This cuts our costs pretty much in half. Plus, this method makes sure that the adults each get a nice bigger gift rather than a whole bunch of smaller gifts. (We don’t include kids in Secret Santa—under 18 means you get a gift!) It adds a fun element, too, seeing who got who and what they got them!” —Scarlet Paolicchi, Family Focus Blog

7. Set Aside Cash

“As a mom of five boys, planning ahead for the holidays is an absolute must. Four of my kids are teenagers, and while their wish lists may not be as long as they were when they were younger, the price of their toys has certainly gone up.

To combat the heavy hit the holiday season takes on our budget, my husband and I decide in January how much we want to spend on each child (as well as on ourselves) for the holidays and birthdays for the upcoming year.

We then take the total, divide it by 12, and put that amount into a special savings account every month. By putting away a small amount each month, we aren’t met with panic when the holiday season is upon us.”—Candace Anderson, Frugal Mom

8. Block Up the Chimney

“Decide with your family to forgo gifts all together. Volunteer Christmas morning so you don’t feel like you’re missing out on anything, and instead of exchanging gifts, take some of the money you all would have spent and use it for an experience together.” —Anna Newell Jones, And Then We Saved

MONEY Shopping

Why You Should Skip That Extended Warranty

Broken TV
Jeffrey Coolidge/Getty Images (TV)—Oliver Childs/Getty Images (screen)

Buying an extended warranty is almost always a waste of money. But people do it anyway because they misunderstand the true purpose of insurance.

It’s holiday shopping season, and anyone who has recently bought a TV, smartphone, or other expensive piece of equipment has likely been on the receiving end of a hard sell for an extended warranty: That’s a nice television you’ve got there. Would be a shame if something happened to it. And wouldn’t you know it? For a mere $59.99, the salesman can offer a little piece of mind in the form of (overpriced) insurance.

It’s a pitch that works, even on those who should know better. Sure, the TV costs $750, meaning you’re paying 8% extra to protect your purchase. But that’s a good deal when the alternative is paying another seven hundred fifty if the machine ever croaks, right?

As the New York Times’ Damon Darlin points out, this kind of faulty logic comes from our collective inability to price risk correctly. Realistically, the TV you just purchased probably has a very low failure rate—Darlin cites data suggesting only 2%-4% of brand-name TVs turn out to be lemons. So you should really be multiplying the cost of your purchase by the likelihood it will break. In the case of a $750 TV with a 4% failure rate, he suggests an appropriately priced insurance policy would be $30.

But even Darlin is giving extended warranties too much credit. The real reason most people pay too much for product protection isn’t because they don’t understand risk (although that’s probably also true), it’s because they don’t understand the economics of insurance in the first place.

The fact is, all insurance policies are overpriced. That’s the nature of insurance. Whenever you buy a policy, whether it’s for your car, your health, or your television, the company selling it to you is betting you will pay more in premiums than your car repairs or health care will ever actually cost. And these companies employ thousands of very smart people to make sure they’re likely to win that wager.

“Even if you do all these calculations, you don’t think insurance companies haven’t also done the same calculations and for some reason believe they’re going to make money nonetheless?” asks Drew Tignanelli, president of the Financial Consulate website. “The way I look at insurance is that it is not designed to save me from every nickel and dime I will lose. If I try that, I will definitely cost myself more than what I’m putting out.”

So if insurance coverage is intrinsically overpriced, why do we buy it at all? “Insurance is meant to prevent me from running into a financial catastrophe or devastation,” Tignanelli explains. An astronomical medical expense, repair bill, or legal fee is unlikely, but it could mean complete financial ruin. Those outcomes are so terrible that they’re worth paying a premium to avoid.

But no matter how much you love Scandal or Game of Thrones, a broken TV is not a catastrophe—financial or otherwise. Most purchases are cheap enough, and their failure rate low enough, for you to safely bet that the product you bought will work for the foreseeable future.

If you’re right—and in the case of TVs there’s a 96% chance you are—you’ll save money. And in the unlikely event it does break, you’ll either be able to afford a new one, or at the very least go without for a while. There’s also a good chance your credit card provides some amount of warranty protection, or that the cost of repairs will be roughly the same price as an extended warranty anyway.

If you play the odds over time, you’re all but guaranteed to come out on top. After all, the entire insurance industry is built on that very assumption.

Do you have the insurance you really need? Check out these articles to find out:
Homeowner’s Insurance: Covered? Don’t Be So Sure
Here’s a New Reason to Think Twice Before Buying Long-Term Care Insurance
How to Do an Insurance Inventory
You Can Now Buy Health Insurance at Walmart—but Should You?

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