Monday, September 05, 2016

What’s in your Wallet?

The credit card ads on TV amaze me. Credit card companies are giving card holders 2 to 4 percent back on their purchases. The new concept of money is that, you get nothing for saving it in the bank, buy yet you get money back for spending it.

Ever wonder where that 2 to 4 percent rebate came from? It has to come from the retailer. Kind of takes me back 30 years ago when you asked the store for a cash discount and if they said, no, you gave them your credit card. And you could stick it to them in varying degrees. Master Card charged the retailers more than Visa did.

If you can repay the credit card charges at the end of the month, you get a little cash back. Realistically if you made 120k a year, that’s about 10K a month to spend—$200 to $400 dollars in cash back if you put everything on a credit card.

The question you need to ask is, “Where does the credit card company make its money?” And it certainly not by giving you cash back for each purchase. If you screw up, you get to pay 16% interest on your balance. Not a bad deal for the bank.

So in today’s world, the phrase “What’s in your wallet?” has a good ring to it. I have trouble with the concept of spending money to get money back. It smacks of a snake oil salesman.

Of course, todays grads get the student loan and then the 250K home at 4% and everything else on their credit card at plus 16%. Sounds a little like the company store routine. We know what’s in your wallet, absolutely nothing, for the rest of your life.

You wanted it now, and decided to pay for it over time. The trouble is, forever is a little longer than you had in mind. Compound interest is still the 8th wonder of the world.


Anonymous said...

Only way to use credit cards is as "convenience cards". Pay them off in full at the end of each cycle. You have the convenience of not having to carry cash around, you get a monthly itemized record of your purchases, you get fraud protection, you get other helpful perquisites. And you can use different cards for different activities so your expenses are segregated and easy to keep records with: household, business, education or training, a specific project, etc. All of this for free, and you get some cash back. Plus, using these credit cards and keeping my payments current gives me a very good credit profile.

I have credit cards that have been giving me a zero percent APR opportunities for the last 10 years. I've been carrying some business and personal debt on zero APR cards for years. Why reduce my capital when I can float debt for free?

This works for me. I don't see a downside for me personally. Am I missing something?

Jim in San Marcos said...

Years ago if you put your savings in the bank, you received interest on you deposit of about 6 to 10%.

Today if you put money in the bank you get zero interest, but if you spend it, you get 1 1/2 interest back.

Banking concepts have been turned upside down. A person is rewarded for consumption and penalized for saving.

AIM said...

Fiscal policy, economics, finance, business, and government are all upside down, inside out, backwards and "wrong way to". Common sense is not very common. Good judgement has left the house. The stable rules and principles have gone by the wayside. What has happened to America? To the world?