The idea of using pawn shops as a barometer for the economy is not new – it just makes sense. When people start to experience financial difficulties, they use possessions purchased when times were better to help survive the lean times. This leads one to believe that investing in pawn shops might be a smart move right about now, with an economy that is still lagging and many in need. Owners are saying that they are meeting customers totally new to the pawn shop “scene,”with items that are higher scale and more expensive.
Before running out to invest your hard earned money, you might want to be aware of a couple of trends. Pawn shops make money either by charging interest on loans that customers take out based on collateral, or through retail sales of items that were not redeemed by customers or sold to the pawn shop outright. Non-redemption rates are soaring as people remain out of work for extended periods, doubling over the past 30 years. At the same time, retail sales in pawn shops have dropped drastically, as people remain unable to purchase items due to the economy. Many pawn shops now rely on customers bringing in gold items to be smelted down and sold for the intrinsic gold value, which has risen dramatically over recent years.
In order to appeal to the newer upscale users of pawn shops, many stores are going for an improved appearance, with spacious aisles and bright lights. These changes are more appealing to the upper middle class who have suddenly found themselves in over their heads due to layoffs or cutbacks. An overlooked aspect of this change in clientele is the small business owner, the fastest growing demographic of pawn shop clientele. The implication is obvious: Business owners are having difficulty meeting payroll and paying for the necessary services and merchandise to keep their businesses running efficiently, while traditional sources of loans are drying up. There is even an “app for that:” i-phone users can download an application that specifically searches for the nearest pawn shop. Or, you can do the entire transaction online at Pawngo.com, which allows you to pawn items from the comfort of your keyboard.
Television reality shows such as “Pawn Stars” are also helping to eliminate some of the negative stereotypes that people have about pawnbrokers. Banks and other traditional lenders are abandoning whole classes of consumers and acting extremely conservatively toward loan customers. This trend drives business to the high-interest options that accept anyone with collateral – pawn shops and payday loans. Ten to 20 percent a month (or even higher in some areas) is typical for a pawnshop loan. Failure to make a single payment on time allows the broker to take legal possession of the collateral, which is typically worth much more than the face value of the loan. On the other hand, failing to make a payment will not impact the customer’s credit rating, since pawn shops do not typically interact with rating services at all. Preserving your credit rating might be slim comfort to if you have lost your wedding ring or treasured family heirloom because you were a few hours late getting to the shop to make payment.
A sure sign that the high-interest loan industry is growing are efforts to organize the industry and lobby for favorable legislation. This concerted effort decreases the chances of getting legislation in place to protect consumers.
It used to be that, in the words of the “Good Times” theme song, “easy credit rip-offs” were aimed at the lower socio-economic strata of society. We are now seeing that corporate desire to “keep costs down” and enhance shareholder profit has resulted in more and more of America falling into the lower economic groups to be exploited. True progressives see this and work to organize these groups (and others) in order to protect our society from further degradation. At the same time, corporate-funded groups like The Tea Party rush to indoctrinate the populace into believing that economic problems are always self-inflicted.