Financial Flexibility: What is it worth?

Some of America’s largest retailers have developed special programs designed to entice shoppers to fork over their stimulus checks or tax refunds in exchange for slight discounts on their products. By giving up some of your flexibility in spending you can get up to 10% added to your purchasing power. Is getting that 10% discount really worth giving up your freedom of choice?

The most common incentive seems to be a ten percent increase in buying power if you exchange your tax refund or stimulus package check for store credit instead of cold hard cash.

Car dealers have often used tax season as part of a marketing plan by offering free eFile services where the expected refund can be applied as a down payment on a new vehicle. That has always made sense to me since the vehicle purchased is almost certainly going to cost more than the tax refund. However, these new deals being offered by Radio Shack, Sears, Kmart, Krogers, and countless other grocery store chains are a little different and strike me as a bad idea for consumers in general.

To be fair, Radio Shack’s plan is better than most. Radio Shack will be happy to cash your tax refund or stimulus package rebate check (up to $2500 total) for you at no charge. This can be important for people who would otherwise need to use a check cashing establishment and pay a percentage of the check’s value in fees, but for anyone with a bank account, it is convenient but not an important feature. After Radio Shack takes your check, they will give you a ten percent discount on any purchase of over $50.00. There are no limits on this offer so you could get yourself a Sirius Satellite radio or, presumably, a decade’s supply of AA batteries at the 10% discount. Radio Shack will then place the remainder of your check’s value onto a Vision Silver(SM) Prepaid MasterCard® card that can be used wherever MasterCard cards are accepted.

So, at the end of the transaction, you have gotten a check cashed for free, a discount off that day’s purchase of $50.00 or more, and some money on a prepaid credit card that you can use wherever you like. Radio Shack has sold some of their higher priced items – items that you may have been able to get for 10% less online or at a big box store like Best Buy anyway – and you have a piece of plastic money. If you were planning to buy some item at Radio Shack anyway, this is probably a good deal for you.

As far as these stimulus check deals go, Radio Shack is the cream of the crop. Many grocery store chains including Krogers, Rays, and ShopRite as well as general retailers Sears and Kmart want your entire rebate check or tax refund. These plans all work the same way. If you bring in your refund/rebate check and use the entire check to purchase store-brand gift cards the store will reward you with an additional gift card worth 10% of your government check. A married couple getting the full stimulus rebate of $1200 would get an extra $120.00 to spend out of the deal.

Many of these plans will take your money even if you used direct deposit as long as you provide a bank statement showing the deposit and you purchase the gift cards for cash or via a debit card.

W. Bruce Johnson, interim CEO and President of Sears Holdings (the company that owns Sears, Kmart, and Lands End), described Sears Holdings plan in a press release this way:

“Whether customers plan to use their stimulus checks for the everyday items they need, updates to their homes or wardrobes, purchasing Energy Star(TM) rated appliances, or perhaps even to get a head start on holiday shopping, the Sears Holdings stimulus check program provides the flexibility to redeem the gift cards at Sears, Kmart, Lands’ End retail outlets or online at sears.com or landsend.com.”

This quote really annoyed me because of the last part where “flexibility” is redefined as meaning that the program participants’ money can be spent at any of three brick and mortar stores and two online stores. Had the consumer simply deposited the money into a checking account they would had true “flexibility” to spend their money anywhere US Dollars are accepted.

The problem with this second type of plan, for me, is the fact that you are essentially trading US Dollars for “Sears Buxs” or “Kroger Kash”. These companies are asking consumers to throw away true purchasing flexibility in return for a dubious discount that could be matched by watching the sales circulars or clipping coupons.

If it costs you money to cash a government issued check its probably because do not have a bank account and you are forced to use a fee based check cashing outlet. If that is the case, you’d be far better off using your tax rebate or refund check to open yourself a basic passbook savings account at your local S&L or Credit Union. The savings in fees and other charges you will get by switching to a regular bank will certainly exceed that 10% savings from Kroger or Radio Shack.