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Episode: 277 - The Hidden Costs of "Free": Understanding the Financial Impact of 'Free' Offers

Introduction 

Ever heard the saying, "Nothing in life is free"? It’s a phrase that’s truer than we often realize. Many of us get excited by 'free' offers, whether it's a free trial, a buy-one-get-one deal, or free shipping. But these enticing offers can come with hidden costs that affect your financial health. In this post, we’ll dive into how the psychology of "free" can lead to overspending and how to protect yourself from falling into these traps. 

 

 

The Psychology Behind Free: Why We’re Hooked 

The word "free" has a strong pull on our decision-making, often leading us to spend more than we intend. Even when the financial benefit is minimal, the promise of getting something for nothing feels irresistible. This is why promotions like free trials, BOGO deals, and free shipping thresholds exist—they are designed to trigger impulsive decision-making and lead to overspending. 

The Zero Price Effect: Why Free Clouds Our Judgment 

Dan Ariely, a behavioral economist, illustrates this perfectly in his book Predictably Irrational. In an experiment, he set up a candy stand where students could choose between a Lindt truffle for $0.15 or a Hershey’s Kiss for $0.01. Most people chose the truffle because it was seen as the better value. However, when the Hershey’s Kiss became free and the truffle dropped to $0.14, people overwhelmingly chose the free Kiss, even though the truffle was still the better deal. This is known as the "zero price effect"—when something is free, we tend to lose our ability to make rational decisions. 

Why Free Isn't Always Free 

I’ve fallen for the “free” trap myself, like when I signed up for an app offering a free one-week trial. I fully intended to cancel before the trial ended, but life got busy, and I forgot. A few months later, I found a $60 charge on my bank statement. It’s easy to get caught up in something that seems free at the moment but ends up costing you later. 

Types of "Free" to Watch Out For 

Let’s look at the different types of “free” offers that can end up costing you more than you expect: 

           Free Trials 

  • Many companies offer free trials, knowing that people often forget to cancel before the trial period ends. This leads to unexpected charges once the trial automatically converts to a paid subscription. It's a common trap based on optimism bias—assuming we’ll remember to cancel but often failing to do so. 

    Buy-One-Get-One (BOGO) Deals 
  • BOGO offers seem like great value, but they can lead you to buy things you don’t need or weren’t planning to purchase. You may end up spending more money than intended just to take advantage of the deal. 

    Free Shipping 
  • Free shipping thresholds often encourage you to spend more just to avoid the shipping cost. Instead of paying a small shipping fee, you add extra items to your cart that you didn’t originally plan to buy, thinking you’re saving money when you’re actually spending more. 

    Freemium Services 
  • Freemium models—where basic services are free, but premium features cost money—are designed to lure you in. Over time, the temptation to upgrade to the premium version can lead to unexpected costs. 

How to Avoid the Financial Pitfalls of 'Free' Offers 

Here are a few strategies that can help you avoid overspending due to "free" offers: 

           Read the Fine Print 

  • Always read the terms and conditions, especially for free trials. Understand the cancellation policy and set reminders to cancel before the trial ends. 

    Set Reminders 
  • Use your smartphone to set a reminder for a few days before the free trial ends. This ensures you have time to decide if you really want to continue the service. 

    Pause Before You Purchase 
  • Before jumping into a deal, ask yourself, "Would I buy this if it weren’t on sale or part of a deal?" If the answer is no, it’s best to skip it. 

    Stick to a Budget 
  • Whether it's a BOGO deal or a free trial, stick to your budget. Don’t allow the allure of "free" to derail your financial plans. 

Conclusion 

Next time you see a “free” offer, pause and consider what it might truly cost you. These hidden financial traps can add up over time and take a toll on your budget. By staying mindful and sticking to your financial goals, you can avoid the hidden costs of "free." Take a few minutes today to review your bank statements and see if any sneaky charges have slipped through. 

Resources Mentioned

Get better results with your finances in 30-60 days - GUARANTEED. Watch this video to learn how! - https://www.debtfreedad.com/payoff-debt-in-60-to-90-days 

Free Tools and Downloads at www.debtfreedad.com

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Transcript: 

Amber Taylor (Host)
00:00
Ever hear the phrase "Nothing in life is free"? It's truer than you think. Today I'm going to talk about why free can sometimes be the most expensive thing you encounter and how you can avoid falling into these traps. Hi, I'm Amber, today's host for the Debt-Free Dad podcast, where we help everyday people like you take control of your finances to live a less stressful life. Today I'm tackling a topic that affects almost everyone: the hidden cost of free offers. From free trials to buy one, get one deals, I'll uncover why free isn't really what it seems.

Amber Taylor (Host)
00:44
Now, before I get started, I want to dive into a part of an article from MoneyCrashers.com. It's called The Psychology of Free and How Free Stuff Causes You to Spend. The article states that something about freebies seems to short-circuit our brain's logic circuits and sometimes leads us to make bad decisions. In his book Predictably Irrational, behavioral economist Dan Ariely gives examples of how the psychology of free leads consumers to behave irrationally.

In one experiment, Ariely set up a temporary candy stand on a college campus. Students had the choice of buying a Lindt truffle, a gourmet treat that typically sells for about 50 cents, for just 15 cents, or getting a Hershey's Kiss worth five cents for a penny. Unsurprisingly, 73% of passersby decided the truffle was the better deal. But when the experimenters dropped the price of both items by one cent—14 cents for the truffle and free for the Hershey's Kiss—suddenly the percentages reversed. Now, 69% of the students found the free Hershey's Kiss more appealing than the truffle, even though the truffle was 36 cents off its retail price and the price difference of the Kiss was only five cents.

The testers repeated the experiment several times, experimenting with different prices. Each time, the availability of a free product led people to make a different decision from the choice they made when money, even a tiny amount, was involved. Ariely and his colleagues called this the zero price effect. Now, isn't this interesting? I'm sure I would probably be caught the same way—I'm like, "Woohoo, free! I just want the free thing."

Amber Taylor (Host)
02:38
So here's my real-life story of a time where free didn’t necessarily turn out to be free. I once signed up for an app that was offering a free one-week trial, and I thought, "I'll try it out for a week—no big deal. I’ll cancel before the week is up." Only, life happened, and I got busy, and I forgot about it. A few months later, I was looking through my bank statements and thought, "What is this?" It ended up costing me $60 before I even realized what happened.

So, let's dive into some examples of different types of free that can end up costing you more than you think.

Amber Taylor (Host)
03:51
The first one is free trials—this is what I got caught on. You know, if you're following our advice, you’re checking your bank statements regularly, so you wouldn’t necessarily get caught with that. But if you're not, you might be getting caught with some of these.

Free trials lure you in with no upfront cost, but if you don’t cancel before the trial period ends, automatic billing kicks in. Most companies bank on the fact that people will forget to cancel. These offers play on your optimism bias—you assume you’re going to cancel on time, but life gets in the way.

Amber Taylor (Host)
04:30
Next up is buy one, get one—BOGO deals. These offers sound so enticing, but they often lead to you buying something you wouldn’t have purchased otherwise. In essence, you're paying for something you didn’t really need. This is an anchoring bias tactic that makes the second item feel like an amazing deal, even if you didn’t need it in the first place.

Amber Taylor (Host)
05:14
Another one is free shipping. Many e-commerce websites offer free shipping if you spend a certain amount. This often leads people to spend more than they intended just to avoid the shipping fee. I’ve been a victim of this myself. I’ve done it where it's like, "Ooh, if you spend $25 more, you'll get free shipping," but the shipping was only $9.99. So I ended up spending more. The free shipping anchor makes you feel like you're saving money, but in reality, you're spending more on things you didn’t even plan to buy.

Amber Taylor (Host)
05:56
Lastly, there’s the freemium model. Apps, streaming services, and games often operate on a freemium model, where basic features are free, but premium features come at a cost. This model is designed to hook you in with the free version and slowly encourage you to upgrade. Once you've invested time or energy into something, you're more likely to spend money to unlock more features. This is known as the sunk cost fallacy.

We’ve all been there, right? We’ve all jumped in and taken advantage of free.

Amber Taylor (Host)
06:42
So, I have some tips to help you avoid these free pitfalls. First, read the fine print. Before signing up for any free trial or deal, take the time to read the cancellation policy and understand any potential fees that might come later.

Second, set a reminder. We all have smartphones. Put it in your phone, set an alarm—whatever you need to do. Set a reminder to cancel the free trial two days before it ends. Give yourself a little buffer.

Amber Taylor (Host)
07:23
Third, pause before you purchase. Whether it's a BOGO deal or free shipping, take a moment and ask yourself, "Would I buy this if it weren't for the deal?" If the answer is no, skip it.

Lastly, limit freemium services. Stick to the free version unless you genuinely need the premium feature and will use it regularly. If not, assess which ones you’re actually paying for. If you’re not using them, drop them down. Sometimes listening to an ad here and there isn’t that bad—it’ll save you money in the long run.

Amber Taylor (Host)
08:10
So the next time you see something labeled as free, pause and think about what it might really be costing you. Being mindful of these hidden traps can save you hundreds, if not thousands, in the long run. Take a moment today to review your bank statements—go see if there are any sneaky charges you may have forgotten about. It's never too late to take control. And if you want to pay off debt, save more money, and take control of your finances to start seeing amazing results in just 30 to 60 days, head on over to the show notes, click on the featured link, and we’ll show you how.

 

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