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How credit card rewards became a $9.2B wealth transfer

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Re: How credit card rewards became a $9.2B wealth transfer

#221

Post by StrauXX »

joenot443 wrote: post #188
59percentmore wrote: post #87

Earlier quoted context omitted.

Things that are more expensive in the US for no reason: Healthcare Internet access College sighs and adds "The very act of making a purchase" At least we have cheap gas? farts

Bit for bit, internet access is cheaper in America than it is in Canada or Australia. Canadians like myself have ~40% of our provincial taxes spent on healthcare, so in my case about ~8% of my gross income. Somewhere in the tune of $20k/yr. While I was living in Seattle and filing American, quite a bit less of my gross income went to healthcare. Just food for thought.

But that is not because it's less efficient. With the Canadian system being socialzed and 20k$ being just 8% of your income it is to be expected that you would pay moch more than the median person into the system.

Re: How credit card rewards became a $9.2B wealth transfer

#222

Post by john_strinlai »

wildrhythms wrote: post #183
ramijames wrote: post #151

Earlier quoted context omitted.

Sorry, but I don't care what other people think. It's my money and I'm careful with it. The entire credit card industry is set up to squeeze out as much profit from people as possible. They offer discounts as an incentive, but it is a huge trap that many, many people fall into. I'm not interested in risk. I'm interested in simplicity. It's participating in the credit card industry that is foolish.

For people who only spend what they have, what is the risk? I don't accrue credit card debt, never have, so I've enjoyed a 2-3% discount on my entire spending history. Over lifetime that will probably amount to a couple of vacations.

>For people who only spend what they have, what is the risk?

there is none. some people are just ideologically opposed to credit cards, like the parent appears to be.

their loss, really. they end up paying a portion of the cost but reap none of the benefits (rewards, additional legal protections)

Re: How credit card rewards became a $9.2B wealth transfer

#223

Post by freeone3000 »

tomaskafka wrote: post #129
ramijames wrote: post #121

Earlier quoted context omitted.

I'm 46. I've never had a credit card. I have a bank account and a debit card. If I can't afford something, I don't buy it. You can just opt out of using credit cards.

Whole Europe does this. I never understood why whole nation wants to live in debt just to have one extra month of cash flow (which they’ll probably squander soon).

Because it gives me 2.5% cash back, which is basically free money.

Re: How credit card rewards became a $9.2B wealth transfer

#224

Post by buran77 »

delish wrote: post #115
nsedlet wrote: post #31

Credit cards also transfer wealth from people who pay interest to people who don’t. It’s a silly system, where everyone has to invest their time (optimizing for rewards, avoiding interest) in an ultimately negative sum game. I hate it so much.

Patrick McKenzie rebuts this here: (podcast) https://open.spotify.com/episode/2E2KRPcDvh1LcRw5bIsBms or here (article): https://www.bitsaboutmoney.com/archive/anatomy-of-credit-car... The intuition being: people who carry balances and pay interest don't actually spend very much; they are not wealthy.

What does that graph tell you? Because I think patio11 wanted to send one message and people accidentally misunderstand the graph.

That's the interchange income corresponding to wealthy people. Interchange is paid by the card-accepting business, not by the buyer. The buyer pays interest and other fees and that graph looks very different.

From that original study the full picture table says in % of ADB that the "poorest" (below 620 FICO) pay ~45% interest and fees but bring only 2% additionally in interchange income. The wealthy (at 800+) pay ~10% interest and fees but bring another almost 10% interchange income, on 4 times higher spending, and 3 times higher rewards (so the wealthy get ~12 times higher rewards in $ value than the "poor").

Just the percentages paid by each group more than offset the difference in spending. There are also way more "poor" accounts than wealthy accounts. Intuitively you can tell that the banks are effectively subsidizing the fees and interest for the wealthy with the income from the poor, for the sake of the interchange income which is mostly generated by the wealthy but doesn't come from their pocket.

Those poorest of people (<620 FICO) pay more interest and fees (percentage and absolute terms) than any other group. There's a range in the middle on the wealth scale where the customers are actually a net loss for the banks (the 660-760 FICO range).

Re: How credit card rewards became a $9.2B wealth transfer

#225

Post by Brendinooo »

nerdjon wrote: post #155
nsedlet wrote: post #31

Credit cards also transfer wealth from people who pay interest to people who don’t. It’s a silly system, where everyone has to invest their time (optimizing for rewards, avoiding interest) in an ultimately negative sum game. I hate it so much.

I gave up long ago trying to optimize any rewards, it just ended up being stressful and not really worth it ultimately. Now I just use my apple card everywhere, pay it off every month and get whatever rewards I get. It feels like a weird situation, those that stand to gain the most from credit cards are also the ones that should feel a difference of under $100 in rewards the least. The one exception I see is bonus si…

I've generally tried to stay with cash back rewards in categories that don't change, that's been the best way to balance complexity with rewards for me while not nudging me to buy stuff I don't actually need. I don't like messing with points or rotating categories or included subscriptions. With one exception I avoid annual fees as well.

So like, I have a card that's 6% on groceries, another that's 3% on gas and restaurants, Apple Card does 2% on Apple Pay transactions, and I have a 1.5% card for everything else.

Re: How credit card rewards became a $9.2B wealth transfer

#226

Post by swed420 »

roland35 wrote: post #15

Patrick McKenzie (patio11 fame) had a great blog post in credit card rewards There is a lot that goes into it, and it is interesting how customers like me who literally never have carried interest and have to made thousands of $ in rewards over the years still make the banks money.... https://www.bitsaboutmoney.com/archive/anatomy-of-credit-car...

Discussion of patio11's article:

https://news.ycombinator.com/item?id=39928604

Re: How credit card rewards became a $9.2B wealth transfer

#227

Post by swed420 »

gruez wrote: post #186

The most defensible framing that I came across (maybe from patio11?) in favor of credit card rewards is that they're a "bulk discount" on interchange fees. People who spend more on their cards also pay more fees (passed through the stuff they buy), so it kinda makes sense to give them a discount[1]. That's what credit cards do. Cards with the highest rewards are geared towards high spenders, with corresponding credit…

Discussion of patio11's article:

https://news.ycombinator.com/item?id=39928604

Re: How credit card rewards became a $9.2B wealth transfer

#228

Post by swed420 »

ngriffiths wrote: post #61

Patio11 covered this exact topic: https://www.complexsystemspodcast.com/episodes/credit-card-r... It's clearly more complex than the story these authors are telling, in particular the highest income consumers get the worst returns on their interchange payments. So stores and services catering to wealthy consumers are actually subsidizing an opportunity for savvy customers, many of whom are not wealthy

Discussion of patio11's article:

https://news.ycombinator.com/item?id=39928604

Re: How credit card rewards became a $9.2B wealth transfer

#229

Post by tylerhou »

buran77 wrote: post #224
delish wrote: post #115

Earlier quoted context omitted.

Patrick McKenzie rebuts this here: (podcast) https://open.spotify.com/episode/2E2KRPcDvh1LcRw5bIsBms or here (article): https://www.bitsaboutmoney.com/archive/anatomy-of-credit-car... The intuition being: people who carry balances and pay interest don't actually spend very much; they are not wealthy.

What does that graph tell you? Because I think patio11 wanted to send one message and people accidentally misunderstand the graph. That's the interchange income corresponding to wealthy people. Interchange is paid by the card-accepting business, not by the buyer. The buyer pays interest and other fees and that graph looks very different. From that original study the full picture table says in % of ADB that the "poore…

Businesses raise prices to account for interchange fees. So they are essentially is paid by the consumer. If we outlawed rewards credit cards (by capping interchange fees), everything would likely be slightly cheaper.

Re: How credit card rewards became a $9.2B wealth transfer

#230

Post by 59percentmore »

joenot443 wrote: post #188
59percentmore wrote: post #87

Earlier quoted context omitted.

Things that are more expensive in the US for no reason: Healthcare Internet access College sighs and adds "The very act of making a purchase" At least we have cheap gas? farts

Bit for bit, internet access is cheaper in America than it is in Canada or Australia. Canadians like myself have ~40% of our provincial taxes spent on healthcare, so in my case about ~8% of my gross income. Somewhere in the tune of $20k/yr. While I was living in Seattle and filing American, quite a bit less of my gross income went to healthcare. Just food for thought.

"I make $250k CAD a year, my experiences must be representative of, and relevant to, the masses," is a wild thought to have.

Well, maybe I spoke too soon, because my private American healthcare turns out to also be about 8% of my gross income (of $60k)(before copays and my deductible)(and also it's crap). Twinsies!

But yes I agree that it would be awful to have my health needs taken care of and a mere ~160k USD left to spend on everything else.

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