The Dark Side of Coupons

Clipping coupons can be an effective way to save money — or a trap that costs us money, time and even our health. Among the ways these ostensible money savers actually work against us…

Coupons can convince us to buy overpriced or unneeded products. Most coupons are for pricey brand-name goods, not cheaper generic or store-label items. Coupons for brand-name goods are legitimate money savers only, if they reduce the price enough that these items are cheaper than their generic alternatives or if the brand-name products truly are better than the generic ones. Often neither is the case. Frequently coupons steer us toward obscure or recently unveiled products that we wouldn’t have considered at all without a coupon. It’s perfectly reasonable to try new foods and household products that seem interesting. Just don’t be fooled into thinking you are saving money. Unless you cross something more expensive off your shopping list each time you use a coupon for an item that you would not otherwise have purchased, you could be coming out behind.

Warning: Be especially wary of coupons that feature the word “free” in large typeface, such as “Buy two, get one FREE.” Consumer-products companies have discovered that shoppers tend to significantly overestimate how attractive a deal is when they see the word “free,” a fact confirmed by MIT researchers in a study published in Marketing Science. The study found that consumers are far more likely to accept the offer of a free candy than the offer of a candy at a price so low — one cent — that it is essentially free. The authors of the study also noted that Internet retailer Amazon.com had come to the same conclusion about the powerful effect of the word “free.” When Amazon.com tested free shipping, orders increased dramatically, but when it reduced the cost of shipping to a negligible amount (the equivalent of 10 cents), orders hardly picked up at all.

Coupons can persuade us to eat unhealthy foods. Among the most common coupon categories are prepackaged sugary or salty snacks, cookie dough and soda. These “junk food” coupons encourage shoppers to mistake irresponsible behavior, such as purchasing and consuming junk food, for responsible behavior — saving money with coupons. This psychological trap undercuts some shoppers’ ability to skip the supermarket snack and soda aisles and can foster poor eating habits and weight gain. Besides, junk food coupons are not really money savers at all. As the term implies, junk food is food that we don’t really need, so any money spent on junk food always is money poorly spent. If a 25-cents-off coupon convinces us to buy a $1 bottle of soda, we haven’t saved 25 cents — we’ve misspent 75 cents. And because junk food makes us less healthy when consumed regularly, it could increase our long-term health-care bills as well.

We tend to fritter away any money that we save with coupons. Shoppers often reward themselves for their coupon-clipping frugality by allowing themselves to splurge on a luxury item or two. These splurges sometimes are greater than the amount that was saved in the first place, an observation confirmed by a 2008 working paper by Harvard Business School researchers. The authors of that paper found that shoppers at an online grocery Web site who redeemed a $10-off coupon spent an average of $1.59 more than shoppers who didn’t use a coupon. The financial reward for using a coupon is a lower bill, not an extra purchase. Some people see coupon clipping as a substitute for a job. Jobs are hard to find these days, and some frustrated job hunters are turning to coupon clipping as a productive way to use time previously spent in the workplace. This thinking received a boost from a well-publicized 2010 Wall Street Journal article that concluded that couponers earn the equivalent of $86.40 per hour, tax-free, for their efforts. Unfortunately, coupon clipping is not a reasonable substitute for a job. While a few minutes per week flipping through the Sunday circulars or visiting coupon Web sites in search of savings on items that you would have purchased anyway can indeed yield solid financial returns, the per-hour earning rate from coupon clipping declines dramatically the more time that is devoted to it. Those who are unemployed would be better served spending their time obtaining new job skills or searching for a new job, as frustrating as that can be.

Source: Farnoosh Torabi, a financial journalist who has been an anchor for CBS MoneyWatch segments, a reporter for Money magazine and a contributor to Wall Street Confidential video podcasts. Based in Brooklyn, New York, she is author of Psych Yourself Rich (FT Press). www.Farnoosh.tv

Nov/3/11

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