The release of a new iPhone model each year generates great hype and desire among consumers to upgrade their devices. However, a recent survey by WalletHub revealed some concerning findings about how far people are willing to go to get the latest iPhone, even when it strains their budget. The results highlight the pitfalls of consumerism and perceived social pressures when it comes to owning new technology.
Many Americans Willing to Take on Debt for the iPhone
One of the most startling statistics from the survey was that over 20% of respondents said they think the new iPhone is worth going into debt for.
Why Phones Prompt Costly Upgrades
With the base model of the newest iPhone 14 starting at $799, what motivates so many people to upgrade yearly when it requires financing? There are several psychological and social factors:
- Fear of missing out - FOMO is a strong force. Apple hypes cutting-edge (and often copied) features like improved cameras and processing speeds, making older models seem obsolete.
- Status symbol - For some demographics, new iPhones convey wealth, prestige and being tech-savvy (even though Android devices are more advanced). It's a status marker.
- Social inclusion - Young users, in particular, want to fit in and avoid ridicule for outdated devices (the horror). iPhones have become central to social lives.
- Perceived necessity - With society constantly connected, some consumers feel having the latest model is essential to their lifestyle.
The Dangers of Financing Phones
While carriers and retailers make installment plans seem convenient for expensive new phones, there are significant risks consumers take on with debt:
- High interest - Interest rates on phone financing can exceed 20% APR, driving up costs.
- Credit damage - Missed payments can hurt your credit score, making future borrowing more difficult and expensive.
- Financial burdens - Debt repayments become a constraint on limited budgets. Phones depreciate rapidly so their resale value rarely offsets loan costs.
- Recurring cycle - Consumers who upgrade yearly remain stuck in a debt cycle without an end. It's difficult to get ahead financially.
Budget Carriers Gain Consideration
Another noteworthy finding was that 60% of survey respondents said they would be willing to try a budget cellular carrier. In the past, major carriers like Verizon, AT&T, and T-Mobile have dominated the industry with advantages like extensive coverage, especially in rural locales. Their premium pricing reflected their market control.
However, new budget carriers like Mint Mobile, Visible, and Boost have shaken up the industry in recent years with lower pricing. Their growth in customers shows consumers are re-evaluating traditional assumptions about carriers.
Benefits of Choosing a Budget Carrier
There are several motivations for consumers to consider switching to a budget carrier:
- Significant cost savings - Budget carriers offer plans with comparable features for a fraction of major carrier prices. This appeals to cost-conscious consumers.
- Simplified offerings - Most budget carriers have straightforward pricing with unlimited talk/text and a set amount of data. No complex plans.
- Flexibility - Consumers aren't locked into contracts and can switch carriers month-to-month.
- Sufficient coverage - Budget carriers offer good coverage in most populated areas where people use phones most. Reliance on WiFi helps minimize gaps.
- Sufficient features - Unlike years past, budget carriers now have competitive core features for the majority of users. Things like 5G access, hotspot sharing, international roaming, and unlimited talk/text are standard.
Drawbacks to Budget Providers
While the value proposition of budget carriers has improved markedly, there are still some potential drawbacks consumers should be aware of:
- Coverage limitations - Budget providers have fewer cell towers than major carriers, so rural coverage may be spotty. This is the biggest issue.
- Lack of perks - Most don't offer bonus streaming services, device discounts, or other benefits included in major carrier plans. These weren't missed by past budget carrier customers.
- Customer service challenges - Some budget carriers rely heavily on self-service and have limited call center support. This can be frustrating for customers needing assistance.
- Speed caps - While budget carriers offer 5G, some cap data speeds after a certain threshold. This appeals to most budget-minded users but may impact data-heavy activities.
Installment Plans Aren't Always Ideal
Many consumers finance expensive new phones to make them seem more affordable. However, the survey found that 62% believe it's better to purchase phones upfront versus in installments.
Benefits of One-Time Purchases
Paying the full price for a phone has advantages:
- Avoids interest charges - By not financing, consumers prevent loan interest which commonly exceeds 10%.
- Less financial risk - Without a lengthy payment obligation, users face less impact if their income changes suddenly.
- More flexibility - Fully owning a phone allows freely switching carriers or reselling the device.
- Potential savings - Paying with a credit card allows earning rewards points and cashback on large purchases.
When Installments Are Practical
For some consumers, installment plans do make financial sense:
- When cash reserves are low - Spreading costs over months helps manage cash flow for big purchases. Building savings is ideal but not always possible.
- To improve credit access - Meeting installment loan payments helps build credit which may expand options to qualify for future loans at better rates.
- To maintain liquidity - Keeping cash available for emergencies or investment opportunities rather than tying it up in a phone may be prudent financial management for some households.
- To benefit from carrier subsidies - Installment plan discounts lower monthly carrier bill costs, partially offsetting interest.
Apple's Power Warrants Tax Scrutiny
The survey also revealed over 50% of respondents feel Apple doesn't pay enough taxes relative to their vast profits. With an estimated 15% effective tax rate, Apple's complex global tax minimization strategies have drawn heavy criticism. Their tax practices reduce revenues that could benefit public priorities like infrastructure and social services.
For an immensely profitable company of Apple's scale to pay a lower tax rate than many middle-class Americans highlights inequities in the tax system. It also speaks to Apple's market power and influence in negotiating favorable deals. Reform advocates contend corporations like Apple with dominant market control owe back more to the societies that enabled their success.
Credit Checks Also Questioned
Another area of discontent the survey exposed is cell phone carrier credit checks. Nearly half of respondents view this practice as unfair. Carriers argue credit scores help predict customer payment risk to minimize defaults (newsflash: it's not reliable). However, poor credit restricts access to services that have become virtual necessities. Opponents contend credit should only be checked for issuing lines of credit, not services. Automating discrimination based on algorithms that may contain biases also raises concerns about fairness.
Smartphone Costs Require Careful Evaluation
The allure of new iPhones will likely always drive impulse upgrades regardless of cost. However, WalletHub's survey highlights areas where consumers feel companies exploit these desires without adequate regard for individuals' financial constraints. Companies wield asymmetrical power versus consumers in these transactions.
With smartphones so embedded in modern life, examining ways to balance innovation with equity seems warranted. More thoughtful practices around credit access, installment lending, taxation, and pricing could benefit society broadly. There are rarely easy answers to these complex tradeoffs, but the survey results underscore people's desire for greater fairness.
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