Comments on: Rewards, Rewards, Rewards http://www.investingintelligently.com/2006/02/22/rewards-rewards-rewards/ Not just another (Canadian) financial blog Fri, 21 Nov 2008 11:41:56 +0000 http://wordpress.org/?v=abc By: Canadian Capitalist » Keeping up with the Joneses http://www.investingintelligently.com/2006/02/22/rewards-rewards-rewards/#comment-1360 Canadian Capitalist » Keeping up with the Joneses Fri, 25 Aug 2006 02:51:03 +0000 http://www.investingintelligently.com/2006/02/22/rewards-rewards-rewards/#comment-1360 [...] Why do we get the urge to spend money? Why are most of us on a hedonic treadmill, endlessly upgrading stuff with “better” stuff? Is it because credit is so easily available? Are credit cards, which makes it oh-so-easy to spend money that we don’t have, to blame, as we argued sometime back? [...] [...] Why do we get the urge to spend money? Why are most of us on a hedonic treadmill, endlessly upgrading stuff with “better” stuff? Is it because credit is so easily available? Are credit cards, which makes it oh-so-easy to spend money that we don’t have, to blame, as we argued sometime back? [...]

]]> By: Dave http://www.investingintelligently.com/2006/02/22/rewards-rewards-rewards/#comment-174 Dave Thu, 23 Feb 2006 17:05:19 +0000 http://www.investingintelligently.com/2006/02/22/rewards-rewards-rewards/#comment-174 tom: I would use a credit card for large purchases rather than cash/debit-card but I would probably pay it down right away rather than wait until the end of the month. Even then, only if I had to, like airplane flights and other large online purchases. Or things I want protection for. I once had a flight with Jetsgo before they went out of business and I got my money back from AMEX. I would never put a large purchase on my credit card just so I could get 1% cashback or Air Miles. Saving $40 on a $4000 vacation just doesn't make any sense and it would only encourage me to use the credit card more often. tom: I would use a credit card for large purchases rather than cash/debit-card but I would probably pay it down right away rather than wait until the end of the month. Even then, only if I had to, like airplane flights and other large online purchases. Or things I want protection for. I once had a flight with Jetsgo before they went out of business and I got my money back from AMEX. I would never put a large purchase on my credit card just so I could get 1% cashback or Air Miles. Saving $40 on a $4000 vacation just doesn’t make any sense and it would only encourage me to use the credit card more often.

]]> By: tom venner http://www.investingintelligently.com/2006/02/22/rewards-rewards-rewards/#comment-173 tom venner Thu, 23 Feb 2006 16:22:18 +0000 http://www.investingintelligently.com/2006/02/22/rewards-rewards-rewards/#comment-173 I also use my 1% cash back credit card (only one between me and my wife) to make large purchases (yearly vacation etc) and pay it off at the end of the month. Only use it for purchases that we would make anyway. Can't see the harm in this. I also use my 1% cash back credit card (only one between me and my wife) to make large purchases (yearly vacation etc) and pay it off at the end of the month. Only use it for purchases that we would make anyway. Can’t see the harm in this.

]]> By: Dave http://www.investingintelligently.com/2006/02/22/rewards-rewards-rewards/#comment-171 Dave Wed, 22 Feb 2006 19:04:08 +0000 http://www.investingintelligently.com/2006/02/22/rewards-rewards-rewards/#comment-171 CC said: "I’ve never used only cash, so I can’t comment on your experience." Actually, I did not give the whole story here... I use debit cards mainly (now that I am with PC Financial), not cash. Except for the last month or two with BMO I was using just cash (to save on transaction fees). But when I say "cash" I mean "cash and/or debit cards." CC said: "I don’t think using debit strictly would cut down my spending impulses. I always have about 2 times monthly expenses in my checking account, enough to cover any small things I might “need”. Your method would only work if I am running out of cash in my checking account and I want something." Excellent observation here! I hadn't thought of this. You are right that spending impulses still apply with a debit card and I can agree with you there. I do spend more freely with a debit card compared to cash. But, and I should have mentioned this before, we DO run the risk of running out of cash in our chequing account all the time because we only keep a limited amount in our chequing account every week as opposed to 2 times monthly expenses in your case. We keep just the bare minimum which right now turns out to be about $375/week in our chequing account. Anything else beyond automatic payments and rent goes into one of our ING accounts where we can't touch it unless we really need something in particular (and so far we have only needed to dip into the ING once for an extra $50 to get through the week). We plan to dip into that ING account for big things that come up. So there was an extra ingredient necessary for us to reduce our spending. It was not JUST getting rid of the credit cards that did it, it was also limiting the amount of available debit-card-cash, which as you pointed out, is necessary to limit debit-card impulse purchases. I can see how getting rid of a credit card but keeping a debit card and leaving a lot of money in a chequing account to spend, is no different than having a credit card... CC said:
“I’ve never used only cash, so I can’t comment on your experience.”

Actually, I did not give the whole story here… I use debit cards mainly (now that I am with PC Financial), not cash. Except for the last month or two with BMO I was using just cash (to save on transaction fees). But when I say “cash” I mean “cash and/or debit cards.”

CC said:
“I don’t think using debit strictly would cut down my spending impulses. I always have about 2 times monthly expenses in my checking account, enough to cover any small things I might “need”. Your method would only work if I am running out of cash in my checking account and I want something.”

Excellent observation here! I hadn’t thought of this. You are right that spending impulses still apply with a debit card and I can agree with you there. I do spend more freely with a debit card compared to cash. But, and I should have mentioned this before, we DO run the risk of running out of cash in our chequing account all the time because we only keep a limited amount in our chequing account every week as opposed to 2 times monthly expenses in your case. We keep just the bare minimum which right now turns out to be about $375/week in our chequing account. Anything else beyond automatic payments and rent goes into one of our ING accounts where we can’t touch it unless we really need something in particular (and so far we have only needed to dip into the ING once for an extra $50 to get through the week). We plan to dip into that ING account for big things that come up.

So there was an extra ingredient necessary for us to reduce our spending. It was not JUST getting rid of the credit cards that did it, it was also limiting the amount of available debit-card-cash, which as you pointed out, is necessary to limit debit-card impulse purchases. I can see how getting rid of a credit card but keeping a debit card and leaving a lot of money in a chequing account to spend, is no different than having a credit card…

]]> By: Canadian Capitalist http://www.investingintelligently.com/2006/02/22/rewards-rewards-rewards/#comment-170 Canadian Capitalist Wed, 22 Feb 2006 18:36:05 +0000 http://www.investingintelligently.com/2006/02/22/rewards-rewards-rewards/#comment-170 Dave: I reread your post about giving up credit cards and I don't think using debit strictly would cut down my spending impulses. I always have about 2 times monthly expenses in my checking account, enough to cover any small things I might "need". Your method would only work if I am running out of cash in my checking account and I want something. And I am certainly not going to carry wads of cash in my pocket. Dave: I reread your post about giving up credit cards and I don’t think using debit strictly would cut down my spending impulses. I always have about 2 times monthly expenses in my checking account, enough to cover any small things I might “need”. Your method would only work if I am running out of cash in my checking account and I want something. And I am certainly not going to carry wads of cash in my pocket.

]]> By: Canadian Capitalist http://www.investingintelligently.com/2006/02/22/rewards-rewards-rewards/#comment-169 Canadian Capitalist Wed, 22 Feb 2006 18:22:56 +0000 http://www.investingintelligently.com/2006/02/22/rewards-rewards-rewards/#comment-169 NCN: I can only speak for myself. It is at least five years since I carried any credit card debt. Every single credit card payment has been in full and on time. I have no debt other than a small mortgage and a small loan for a recent purchase of a van. So, I am hardly in the situation of getting out of debt :) Dave: I've always use credit or debit for my transactions. I've never used only cash, so I can't comment on your experience. What I can claim is that whether I have to pay credit or debit doesn't influence my purchasing decision. NCN: I can only speak for myself. It is at least five years since I carried any credit card debt. Every single credit card payment has been in full and on time. I have no debt other than a small mortgage and a small loan for a recent purchase of a van. So, I am hardly in the situation of getting out of debt :)

Dave: I’ve always use credit or debit for my transactions. I’ve never used only cash, so I can’t comment on your experience. What I can claim is that whether I have to pay credit or debit doesn’t influence my purchasing decision.

]]> By: Dave http://www.investingintelligently.com/2006/02/22/rewards-rewards-rewards/#comment-168 Dave Wed, 22 Feb 2006 17:25:31 +0000 http://www.investingintelligently.com/2006/02/22/rewards-rewards-rewards/#comment-168 CC: It's funny because a few months ago before we stopped using credit cards for anything but online purchases and the like, I would have said the exact same thing. I was a rabid believer that spending with credit cards, as long as the balance was paid off every month, was no different than cash. And I thought it was actually a good thing, being a month+ of free credit. I always thought of myself as pretty thrifty. When I stopped using a credit card I was shocked at the change it brought on me and my expenses. Suddenly money/cash became so much more valuable to me and things changed. There were a lot of purchases that I simply stopped making because I could not bear to part with the cash. I think that the No Credit Blog might be right when <a href="http://ncnblog.blogspot.com/2006/01/cash-back-credit-cards.html" rel="nofollow">he says</a>: "when you use credit cards, you are using a form of payment which is not "real". Whenever you spend real cash, you "feel" the transaction. When you use credit, you don't "feel" the money leave your pocket." I also believe there may be a select few who use credit cards in the same way as cash. I am not implying you are one of them or that you are not one of them. All I know is, I thought of myself as being one of those select few. I had Air Miles and thought that that did not increase my spending either. But now I think differently. I do not think I was one of the select few and I am pretty sure I spent more to get the Air Miles and rationalized the credit card expenses as being "needs" that I was going to buy anyways. CC: It’s funny because a few months ago before we stopped using credit cards for anything but online purchases and the like, I would have said the exact same thing. I was a rabid believer that spending with credit cards, as long as the balance was paid off every month, was no different than cash. And I thought it was actually a good thing, being a month+ of free credit. I always thought of myself as pretty thrifty. When I stopped using a credit card I was shocked at the change it brought on me and my expenses. Suddenly money/cash became so much more valuable to me and things changed. There were a lot of purchases that I simply stopped making because I could not bear to part with the cash. I think that the No Credit Blog might be right when he says:

“when you use credit cards, you are using a form of payment which is not “real”. Whenever you spend real cash, you “feel” the transaction. When you use credit, you don’t “feel” the money leave your pocket.”

I also believe there may be a select few who use credit cards in the same way as cash. I am not implying you are one of them or that you are not one of them. All I know is, I thought of myself as being one of those select few. I had Air Miles and thought that that did not increase my spending either. But now I think differently. I do not think I was one of the select few and I am pretty sure I spent more to get the Air Miles and rationalized the credit card expenses as being “needs” that I was going to buy anyways.

]]> By: Phil http://www.investingintelligently.com/2006/02/22/rewards-rewards-rewards/#comment-167 Phil Wed, 22 Feb 2006 16:49:57 +0000 http://www.investingintelligently.com/2006/02/22/rewards-rewards-rewards/#comment-167 Perhaps the colder climate of Canada has chilled your lizard brain (this is a good thing). It's human nature to think that one should use their credit card to pay for things because of the cashback. It takes an extremely diciplined person to not fall prey to this, and most people aren't that diciplined. I recently decided against getting a rewards card because I figured that there was a greater probability that I would spend 1% more on something I didn't need. It the rewards programs weren't profitable for the card companies, they would go away. "Why Smart People Make Big Money Mistakes and How to Correct Them: Lessons from the New Science of Behavioral Economics" by Gary Belsky and Thomas Gilovich doesn't address this issue directly, but has a lot of similar material. Perhaps the colder climate of Canada has chilled your lizard brain (this is a good thing). It’s human nature to think that one should use their credit card to pay for things because of the cashback. It takes an extremely diciplined person to not fall prey to this, and most people aren’t that diciplined. I recently decided against getting a rewards card because I figured that there was a greater probability that I would spend 1% more on something I didn’t need. It the rewards programs weren’t profitable for the card companies, they would go away.

“Why Smart People Make Big Money Mistakes and How to Correct Them: Lessons from the New Science of Behavioral Economics” by Gary Belsky and Thomas Gilovich doesn’t address this issue directly, but has a lot of similar material.

]]> By: ncnblog http://www.investingintelligently.com/2006/02/22/rewards-rewards-rewards/#comment-166 ncnblog Wed, 22 Feb 2006 15:32:28 +0000 http://www.investingintelligently.com/2006/02/22/rewards-rewards-rewards/#comment-166 Hey, thanks for the link and the love! As for the comment above, most people who are struggling to get out of debt say the exact same things. (I can control myself, I never spend too much, I use it for the convenience.) Believe me, I said the same things for YEARS. Then, I decided to radically change my financial lifestyle, and that included admitting that I had an addiction to the ease of credit card use. It's just that simple. For some people (I would argue MOST people) credit cards are TOO convenient. I realize that there are a select few who can use them, EVERY time, in a responsible manner. (I just don't happen to know these people....even my "wealthy" friends are in debt up to their eyeballs.) Hey, thanks for the link and the love!

As for the comment above, most people who are struggling to get out of debt say the exact same things. (I can control myself, I never spend too much, I use it for the convenience.) Believe me, I said the same things for YEARS. Then, I decided to radically change my financial lifestyle, and that included admitting that I had an addiction to the ease of credit card use. It’s just that simple. For some people (I would argue MOST people) credit cards are TOO convenient. I realize that there are a select few who can use them, EVERY time, in a responsible manner. (I just don’t happen to know these people….even my “wealthy” friends are in debt up to their eyeballs.)

]]> By: Canadian Capitalist http://www.investingintelligently.com/2006/02/22/rewards-rewards-rewards/#comment-165 Canadian Capitalist Wed, 22 Feb 2006 14:54:26 +0000 http://www.investingintelligently.com/2006/02/22/rewards-rewards-rewards/#comment-165 I disagree that most people spend more when using a credit card. Most people spend all their income and some more because they have no idea what they are spending it on. Being spendthrift is not a new phenomenon and predates the credit card era. I never ever buy anything just because I get 1% back in rewards. I never ever buy something just because I have a credit card. I only buy something when I can pay cash (ok debit card) for it (enough money in the checking account). The argument that you spend more if it is on credit is not true for me. Am I going to buy more diapers or bananas or milk because I am paying with my credit card? Do I pay more for my cable, phone, newspaper or internet because I use a credit card? I disagree that most people spend more when using a credit card. Most people spend all their income and some more because they have no idea what they are spending it on. Being spendthrift is not a new phenomenon and predates the credit card era.

I never ever buy anything just because I get 1% back in rewards. I never ever buy something just because I have a credit card. I only buy something when I can pay cash (ok debit card) for it (enough money in the checking account). The argument that you spend more if it is on credit is not true for me. Am I going to buy more diapers or bananas or milk because I am paying with my credit card? Do I pay more for my cable, phone, newspaper or internet because I use a credit card?

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