Green Stamps, Reward Points, and You

A few days ago NPR’s Morning Edition ran a story about credit card points and reward programs. It centered on credit card “gamesmanship,” how to maximize points and miles programs for financial benefit.  To read the story click here. 

There are, apparently, groups scattered around the country that meet in person, share on social media, and run web sites dedicated to studying the various options and programs available, where members share how to get the most out of the system, since 90% of newly issued cards offer some kind of points, miles or cash-back incentive.

Janice, a member of one of these groups, has a life goal of visiting every nation on earth using credit card sign-up bonuses, points, cash back, and miles. She is at 135 countries after just returning from Easter Island. She doesn’t have much to say about the Moai, but raves about the points she earned flying there.

How does she and the others do it? She has taken out 46 credit cards in the last five years, all for the sign-up bonuses. Another “gamer” opened up a new credit card account and immediately ordered $3,000 in Amazon gift cards to qualify for the bonus. Yet another – I’d pay to see this, by the way – filled his garage with blenders to get his card’s rewards during a buy-an-appliance promotion.

Despite these odd examples, the people gaming the system are described in the story as “savvy consumers” who have incredible “discipline.”  

In other words, they are very different from the rest of us “regular” credit card consumers. They plan their trips with NASA-like intensity and spend as much time at that game as astronauts spend training for missions. An amateur trying to use Capital One airline points to book a flight to fly out for a family emergency will almost certainly be confronted with a “blackout date.”

It’s estimated that 60% of reward card consumers do not pay off their balances every month. Which is exactly what the credit card companies are banking on. The reward programs are simply genius level marketing. They are designed solely to get you to spend. High balances that stay high after the no- or low-fee period is over are subject to interest rates up to 25%.

Morning Edition did a good job of highlighting how credit card companies want to make sure you buy with credit. They profiled a couple who went to Costco to buy a couch with their brand new Costco Rewards credit card. The couch they wanted was $2,000. The $3,000 couch next to it, however, would garner more cash back points. They went with the more expensive couch because “It came with all those rewards,” the husband was quoted as saying.  At the time, he said, it was exciting, it “changed the way we spent money,” and “the idea that I was going to get cash back made using the card easier.” That couple spent a shocking $40,000 chasing those points and cash back rewards over the course of a year, only earning about $600 in cash back. 

Before you scoff at that, understand this: study after study shows that when consumers use reward cards and think they are “getting something back,” they get a little hit of dopamine. It feels good. It feels and looks like you’re getting something for free.  They never think about how they aren’t really deciding how to spend their money.  When rewards and points are dangled in front of you, it seems obvious to use the card that will get you the most “back” from the transaction.  But why not just pay with cash or check (besides the obvious- you may not have it and need to borrow it)?  Ever think about what the existence of rewards has done to how you decide to pay for things?

I have large, blown-up images of S&H Green Stamps on the walls in my office.  At some point after hearing over and over again how worried people were that they’d lose their points if they fell behind on their credit cards, I made the connection.  It isn’t just easier to spend using credit; it isn’t that they tempt us to use credit by offering reward rewards; the credit card companies also want us to use THEIR card—Discover offers a certain program so that you won’t use your Capital One or Bank of America card, etc. 

“You may think my job is keeping this store, my most important job is keeping customers.”

S&H Green Stamps were little green postage-like stamps that you would receive as a reward for spending a certain amount of money when you shopped at certain grocery stores between the 1930s and the 1980s. You could save up and redeem them for rewards like bicycles, microwave ovens and other household goods at local redemption centers. They were what I call the original rewards “points.”  Knowing you would get stamps for shopping at Grocery Store A but not at Grocery Store B, you would more likely shop at Store A.  The stamps decided where you shopped.

Credit card rewards points and miles work the same.  If you are getting a higher percentage cash back by using your Discover card for purchases, Discover has enticed you to use ITS card.  If it’s sky miles you want, and your Capital One card gives more points toward getting free flights, then Capital One has figured out a way to get you to choose to use ITS card. And so on until you aren’t making your own decision about how to spend money, you are letting the credit card industry decide. 

Then, like the couple who let their Costco habit get a little out of control, you find you are carrying credit card balances with little reward of any value in the end.  I learned how little value points have first hand—I had earned a lot of points on a credit card several years ago but when I went to cash them in (something like 30,000 points), I could only get a $5 gas station credit card, a Shark steam floor cleaner and a pair of cheap binoculars- stuff I really didn’t need or want.  I felt foolish.  You think you are really earning, but a point- earned when you repay at least $1 of your balance- is actually only worth about a penny (or less). 

Please tell me if you actually ever earned enough points to actually redeem for a good flight or something of actual value.  And please think twice before whipping out plastic to pay for something if you are using that card in the hope of getting something of value in exchange.  Keep in mind the real reason these reward programs exist; I am confident it isn’t out of generosity to the consumer.