It’s that time of the year. Snow is on the ground, at least for us hearty northerners. The sound of excited Christmas chatter can be heard in the hallways of schools and parents are rushing around in a frenzied hot mess in order to get all the shopping done. Yuletide spirit lingers in the air as festive tunes are pumped throughout shopping malls in an effort to get us to part with our hard-earned cash.
I actually don’t mind spending money on gifts for people. I’ve read lots of posts about how to have Christmas without spending very much cash. Good on those people who are talented enough, and have the time, to make a Christmas gift for their loved ones. Me? No chance. I’m about as crafty as my two year-old, which is to say, not crafty at all. I do, however, thoroughly enjoy giving gifts and seeing the look of excitement on someone’s face when they open it up.
What I don’t like it getting ripped off. Ever. It annoys me and makes me mad. This is especially true around Christmas.
Shopping Is Hard Work
If you were on the ball, you maybe we’re able to get some of your Christmas shopping done on Black Friday or Cyber Monday. You hopefully got some decent deals. Yes, there are deals to be had. But I’m not always sold on how great they are. The fact the prices are so cheap those few days is more an indication of how badly we’re getting hosed the other 363 days of the year. I don’t think it reflects any benevolence on the part of retailers.
Or maybe you’re like me and you were rushing around this week trying to pick a few things up. Survey results from Ebates.ca say that on average Canadians will spend about $570 on Christmas. Parents will drop around $710, and those without children will spend roughly $489.
Probably, in your journeys to find the perfect gift, you set foot in your local electronics store. Or maybe you shopped for electronics online. You’re not alone. 21% of holiday shoppers make some sort of electronics purchase.
Buying electronics can be complicated. There are lots of questions to consider. And it’s no longer, “Should we go with a Sony or Samsung?” The questions are much more…technical. How many megapixels should my camera have? Should I get a 4K or HD TV? Should I go inkjet or laser for my printer? Do I want my computer to have an SSD or SCSI? How much RAM should I get? Which is cheaper? What product will last longer? Which is the best value? It can all get to be a little overwhelming.
Extended Warranty-Navigating The Christmas Fire Swamp
You may be tempted to think that once you’ve decided what you want to buy, the hard part is over. You’d be wrong. The prize for having navigated through the electronics Fire Swamp is to deal with the last obstacle. The Rodents of Unusual Size. No, not the sales-people that are on you faster than a groundhog at a cabbage convention. No, the foe even more dreaded. THE EXTENDED WARRANTY.
As the groundhog, ahem, I mean salesperson, starts to talk about the different extended warranties offered, you may be tempted to space out and just get it. That’s what many people do. And that’s a HUGE part of a salesperson’s commission.
The reason we opt for extra warranties is because of something called loss aversion. In a nutshell, human beings really hate losing things. Actually, we hate losing things even more than we love getting things. In fact, research has shown that on average, people experience 2x more displeasure from a loss than they do happiness from gaining something. We hate losing things twice as much as we like getting them.
Salespeople and big box electronic stores know this. So they play on our worst fears, which is that we’ll buy this beautiful new item and then it will break and we’ll be Munsoned – up a creek without a paddle. In fact, look at a screenshot I took of the Best Buy Extended Warranty page. Notice how it states that the Manufacturer Warranties “only cover you for so long”. This fans the flames of our loss aversion and we’ll do anything we can to avoid it, including something stupid like purchasing an extended warranty.
Getting Warranty Without Paying Extra
But here’s the thing. Your product still has warranty even if you don’t purchase the EXTENDED warranty:
Manufacturers warranty – This varies from product to product. Most items come with a basic level of warranty. A cheaper device may offer a shorter warranty than a more expensive one. Always be sure to ask the salesperson about this BEFORE buying the extended warranty.
Credit card warranty extension – Many credit cards offer an extension to the existing manufacturer’s warranty. My RBC Westjet MasterCard, for example, doubles the manufacturer’s warranty up to one year. Yours will be different, so be sure to read the details in the fine print about your card.
Why The Extended Warranty Is Such A Bad Idea
It all comes down to dollars and sense.
Check out the infographic below. It details a list of common household electronics and appliances, and how long they typically last (data from techaeris.com, atdhomeinspection.com and consumerreports.org.). I then figured out how many of each device the average 30 year old will go through in their remaining years. I used the average life expectancy in Canada in 2015 (82) to do my calculations. Here are the results:
Stunning. When I looked at the numbers, I was taken aback. I’m going to go through 10 computers and 25 tablets from now until I die? It seems like a lot. But if I think about the last 10 years of my life, I’ve had 3 phones and 3 computers. Seems like it’s not too far off. Remember, these are just averages. If you’re more frugal, you’ll have fewer devices you replace. If you’re an early adopter of technology, you may have more. And this doesn’t take into account all the cool things that will be invented before I die, that I could buy extended warranties for.
The Cost Of Extended Warranties
I then went to the Best Buy website to figure out how much they charge for extended warranties. The warranties they use are often sold under the banner of The Geek Squad, and they are not cheap. Here’s the warranty cost and length for each of the products listed:
|Product||Extended Warranty Cost |
|printer||$30 (4 years)|
|TV||$130 (4 years)|
|Tablet||$210 (3 years)|
|laptop||$200 (3 years)|
|phones||$300 (3 years)|
|fridge||$380 (5 years)|
|stove||$180 (5 years)|
|dishwasher||$195 (5 years)|
|microwave||$170 (5 years)|
|washer||$180 (5 years)|
|dryer||$120 (5 years)|
|camera||$170 (4 years)|
|video game console/Blu-ray||$100 (3 years)|
|router||$40 (3 years)|
|coffee maker||$60 (2 years)|
Finally, I went through and calculated the Lifetime Warranty Cost for each of the most common household devices. Here’s are the numbers:
|Product||Number of Products purchased in a lifetime||Warranty Cost||Lifetime Warranty Cost|
|video game console/Blu-ray||8||$100||$800|
Altogether, if you purchased the extended warranty each time you bought one of these items, you’d spend over $23,000 in your lifetime!!! $23,000!!! That is an insane amount of money!!! And that’s for one person. To get a better idea of which devices have the most expensive lifetime warranty costs and just how profitable these extra warranties are for retailers, check out the infographic below.
Do Extended Warranties Ever Make Sense?
Now, some may think, “But Matt, this is money well spent. It allows me to save money by not having to replace broken or damaged products.”
Well, here’s the thing. The companies that sell these products, big box stores, wholesale retailers, department stores, they’re in the business of making money. And they don’t make much money when they have replaced products that are lemons.
But they make A LOT of money when they sell insurance (extended warranties) to people, knowing that most will never be used.
Don’t believe me? There are only 3 devices where the extended warranty length is longer than the years until replacement. This means that most products will last far longer than the extended warranty. So when something does go wrong, you’re extended warranty will be long over.
Based on this, the only products you should be buying an extended warranty for are printers, tablets and smartphones. But let’s look a little deeper. How much do these warranties cost compared to the cost of the product?
A Deeper Look At Extended Warranties for Printers, Tablets and Smartphones
|Product||Product Cost||Warranty Cost|
Looking at these three items, I wouldn’t buy the extended warranty for any of them, and here’s why.
The printer is so cheap, I’d rather play the odds that it lasts longer than the extended warranty. If I do need to buy a new one before 4 years, so be it. It’s a non-crippling $100.
The tablet had me wondering if I should buy the extended warranty, I have to admit. But here’s why I won’t. It comes with a one year warranty. If you use your credit card, you can get it extended to two years. That’s only one year short of the 3-year warranty that costs $210. For me, it’s not worth it. You’re paying $210 for a 1-year warranty. Don’t buy.
The situation for the phone is basically the same as with the tablet. It comes with a 1-year manufacturer’s warranty, which you can double with your credit card. $300 for an extra year? I don’t think so. I’m not buying.
What If The Unthinkable Happens?
Sure, for all of these items, the extended warranty may cover a few more issues. But I don’t think it’s worth it.
As you can see, most of these devices will last far longer than the extended warranty coverage.
But Matt, what if I DO get a lemon and the product fails sooner than expected?
Well, here are two suggestions:
1. Use your Emergency Fund to replace the item
About a year ago, we had an “incident” in our house. It involved a MacBook Air, a hot cup of coffee, and a sleep-deprived adult. I’ll let you use your imagination and do the math on what happened.
Needless to say, after trying to get the computer fixed, we realized it had to be replaced. We went to the Apple store and replaced it. I have to admit, it was a painful purchase. I hate wasting money. But it was made a whole lot less agonizing knowing that we had the money to cover it. We used part of our Emergency Fund to pay for the new computer. No credit card. No line of credit. We didn’t take on any debt and most of all, we didn’t pile on any stress. Because we tapped into our Emergency Fund to pay for it, we made some small tweaks in our budget over the next few months to replenish the account. If you don’t already have an Emergency Fund, start one. Now.
2. Bank the warranty dollars
Every time you buy a device, inquire about how much the extended warranty is. Take that money and deposit it in a high-interest savings account. As you buy more products, you’ll boost the amount in your account. When you do have a gadget that goes belly up before the projected time, you’ll have the cash to pay for it.
Both of these methods will work well. The second requires you to be more disciplined about putting the money away each time you buy a device. It could get a little cumbersome.
The nice thing about the Emergency Fund is that once it’s in place, you can forget about it, and when you need it, it’s there. And if you do dip into it, it can be topped up in a few months with some minor budget adjustments.
Final Thoughts On Extended Warranties
Bottom line. Don’t get the wool pulled over your eyes when buying household electrical devices. Stay away from extended warranties. Instead, use either of the two strategies I laid out to cover the costs if a device does fail.
Finally, as a bonus for both options, when you’re starting to get long in the tooth, you’ll have around 20 grand you can spoil your grandkids with. This will give you an awesome opportunity to pass on your money values to your grandkids. In addition, it’ll also solidify your status as coolest grandparent around.