Rant: Rewards Programs

One of the things always comes up in discussions about budgeting is rewards programs.  Whether it’s cash back, frequent flier miles, hotel points etc.

Here is my take.  If someone has REALLY solid financial discipline, then they might be able to use a rewards program.  Or if they’re able to get them from spending for work related travel.  Other than that, I think people have a good chance of getting played by a huge, sophisticated industry geared to make people spend more in order to save more and rack up debt in the process.  Or as my friend calls it … “spaving” (spending in order to save).

The reason is that the rewards create a small additional incentive to spend money.  And for a lot of folks, they need help reducing spending.  When they’re faced with a purchase decision and are having trouble making a good decision, that little rewards incentive might be enough for them to make a bad decision.  And the credit card industry is betting on it.

Obviously, the people who run those programs have done the math and have internal reports that show that rewards make people spend more.  So, while someone might think they’re “earning” 5% back, the additional spending more than makes up for the “savings”.

The reason I’m writing this is that I got a letter from United saying that I have 20,000 miles that are going to expire.  … Unless I spend money on a designated “earn activity” soon.

I mean … COME ON!  I spent money on trips where I earned those miles and I only get to keep them if I keep spending money?  And the qualified “earn activities” are magazines, restaurants, etc.  These are the antics that piss me off and make me incredibly wary of “rewards” programs.

Needless to say, when I make travel decisions, United is always my second choice compared to Southwest who keep their rewards program, simple, easy and hassle free.  So, I wonder how many thousands of dollars they’ve lost from me not choosing them just because they’re rewards program department is trying to be so “clever”.

 The only rewards programs we regularly make use of is the Wells Fargo credit card rewards and the Costco Executive membership program.  I earn a few hundred dollars per year on the Wells Fargo card and maybe $150 back on the Costco Card.  For the WF card, I don’t pay attention to them trying to make me spend on certain categories.  I just know that I pay for big purchases with the credit cards, earn the points and immediately pay off the card.


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