How much did your credit card rewards cost you in 2013?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills

What was the net cost of credit cards, considering the extra amount spent compared to cash?

Poll ended at Thu Apr 03, 2014 12:17 am

20% more when paying with a credit card
4
3%
10 to 20%
1
1%
5 to 10%
2
1%
2 to 5%
4
3%
0 to 2%
5
3%
Exactly 0%. I manage to never spend "extra" using a credit card, or the rewards balance out the "slippage".
24
16%
0 to -2%. I am completely immune to all forces of behavioral finance that have been repeatably identified in economic studies, and I collected credit card rewards
109
73%
 
Total votes: 149

madbrain
Posts: 5127
Joined: Thu Jun 09, 2011 5:06 pm
Location: San Jose, California

Re: How much did your credit card rewards cost you in 2013?

Post by madbrain » Fri Jan 03, 2014 7:11 pm

Jfet wrote:
ajcp wrote: Maybe it's not personal deception, maybe this is just a forum of liars? After all, all the net worth polls around here don't conform to what I've read about the average person's net worth.
Do you realize how many doctors, engineers, executives are members of this forum? It isn't exactly the 99%.
Also, the group answering the poll is self-selected, and may not be representative of the bogleheads.org forum members overall.

Alexandria
Posts: 72
Joined: Tue Jun 19, 2012 5:11 pm
Location: Northern California

Re: How much did your credit card rewards cost you in 2013?

Post by Alexandria » Fri Jan 03, 2014 7:48 pm

placeholder wrote:0 since the form of payment has no influence on the purchase decision.
+1

I've also never particularly used cash. I am 37. If I have no frame of reference of using cash, I don't understand why it would use cash differently. Credit, debit, check, electronic transfer, cash, whatever - is all the same to me. Money, in my mind, is just electronic. (I would guess that this would be more true for the younger generations). House aside, I've never made a purchase I didn't save up for first. Just to say I personally have a strong "cash" mentality, but doesn't mean anything as to the actual form of payment (usually credit card, for convenience and rewards. But would never buy anything I couldn't pay cash for).

99% of the population spends more with a credit card, and the most of them are in debt up to their eyeballs. 99% of the population have nothing to do with how I think or make spending decisions.

Harold
Posts: 3154
Joined: Sat Mar 03, 2007 7:50 pm
Location: San Francisco

Re: How much did your credit card rewards cost you in 2013?

Post by Harold » Fri Jan 03, 2014 7:51 pm

ajcp wrote:maybe this is just a forum of liars?
As George Costanza says - Just remember, it's not a lie if you believe it to be true.

stinkycat
Posts: 77
Joined: Sat Apr 23, 2011 6:40 am

Re: How much did your credit card rewards cost you in 2013?

Post by stinkycat » Fri Jan 03, 2014 8:28 pm

I think part of the problem is that there is a sample selection bias on this forum. I think a lot of us are pathological calculators, if we didn't exist, Vanguard wouldn't exist and expense ratios would be much higher. We are the ones who care about such mundane (albeit important) things such as expense ratios. So I am not surprised that a lot of us don't really fall into a lot of the behavioral finance traps that many people fall into. We are just a bit weird in that sense.

User avatar
Kevin M
Posts: 10287
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: How much did your credit card rewards cost you in 2013?

Post by Kevin M » Fri Jan 03, 2014 9:20 pm

Jfet wrote:
wander wrote:Many places have different gas prices for cash and credit cards. If you buy with Cash, you would save about $.10. Each time costs me $2.00. 52 weeks means paying $104 extra with a credit card.
Ah, but those of us with a Costco Amex card would be buying that gas $0.20 to $0.25 cheaper plus get 3% cashback!
Sadly my Costco does not have a gas station :( However, even with a 2% cash-back card using a CC will often be less expensive than the cash price of the station across the street (that only accepts debit cards (not credit cards) and charges a fee to do so).

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)

Caduceus
Posts: 1731
Joined: Mon Sep 17, 2012 1:47 am

Re: How much did your credit card rewards cost you in 2013?

Post by Caduceus » Fri Jan 03, 2014 9:49 pm

My understanding of that research is that cash imposes a psychological delay to consumption decisions. Presumably, people who are prone to impulsive behaviors benefit more from this delay than those who already have mental "defenses" against spending.

I think the problem is not so much with the credit card rewards per se, but with the convenience of credit cards over cash. If I were forced to walk to an ATM ever so often just to buy something minor, I probably wouldn't do it. I went hungry a lot the two months I went without a credit card (to test this out) and gave up. Walking twenty minutes in the snow to get a sandwich only to find out you have no cash, and forgot to transfer money into the checking account is not worth it :) I probably saved about $60 that month though.

User avatar
mike143
Posts: 1332
Joined: Thu Feb 02, 2012 8:55 pm

Re: How much did your credit card rewards cost you in 2013?

Post by mike143 » Fri Jan 03, 2014 10:24 pm

You need to add a >-2% for those that have 5% cards. I do better with cards than I do with cash. With cash I get the lotto itch and its also hard to track.

I actually put any cash I get in the ATM. Why would I spend cash when I can get 2% cash back minimum on everything. I actually stopped my wife from spending cash the other day and had her use her 2% card.
stinkycat wrote:I think a lot of us are pathological calculators
My wife loves me in the grocery store. Good thing we do most our shopping at ALDI, you only have one item to choose from.
Nothing is free, someone pays...You can't spend your way to financial freedom.

dailybagel
Posts: 494
Joined: Tue Feb 15, 2011 8:35 pm

Re: How much did your credit card rewards cost you in 2013?

Post by dailybagel » Sat Jan 04, 2014 12:57 am

Hi, I'm dailybagel, the original poster and author of this poll.
sscritic wrote:Since I can't buy with cash at Amazon, all my spending at Amazon is in excess of what it would have been if I had used only cash.
Thanks for the point about credit cards enabling online transactions, often in a competitive marketplace. I should have added that, when thinking about this question, we would have to compare credit cards to "cash-like" forms of payment online (e.g. Paypal, direct bank account debit, mailing a check).
Saleen wrote: To me I think things are changing, and with immediate access to ones credit purchases such as on Mint, the studies are not longer valid for someone like me. For me, a credit card transaction is immediately in my budget and I can see exactly where I am spending my money and where I am spending too much. Cash purchases, on the other hand, are harder to keep track of.

My father always uses cash and says that's how he realizes how much he is spending. For me, its a quick review of the Mint app on my iPhone. The times they are a changin'.
This is a fair point that I hadn't thought of -- today, we can defer payments with credit cards, but we do not necessarily defer the "mental recording" of the expense. Maybe that's why so many people are claiming that credit cards have no effect on spending. (To me it sounds like people protesting too much.)
Caduceus wrote: I think the problem is not so much with the credit card rewards per se, but with the convenience of credit cards over cash. If I were forced to walk to an ATM ever so often just to buy something minor, I probably wouldn't do it. I went hungry a lot the two months I went without a credit card (to test this out) and gave up. Walking twenty minutes in the snow to get a sandwich only to find out you have no cash, and forgot to transfer money into the checking account is not worth it :) I probably saved about $60 that month though.
It certainly sounds unpleasant to deprive oneself of food for want of funds, no matter what the form of payment. If I may ask, were you in a real financial crisis, or was it a silly mistake that left you without cash in the cases?
Harold wrote:Love this poll. Both for the content, and the predictably indignant responses.

I went with 20%, in part to balance out those who weren't being honest with themselves.
Amen, brother.

placeholder
Posts: 3958
Joined: Tue Aug 06, 2013 12:43 pm

Re: How much did your credit card rewards cost you in 2013?

Post by placeholder » Sat Jan 04, 2014 3:24 am

Caduceus wrote:If I were forced to walk to an ATM ever so often just to buy something minor, I probably wouldn't do it.
Back when I used cash more I carried more cash I didn't keep going to the ATM to money for small purchases. Even now I have enough for that sort of thing or if I get to grocery store and the electronic systems are down (happens every few years).

goaties
Posts: 277
Joined: Fri Jan 29, 2010 4:15 pm

Re: How much did your credit card rewards cost you in 2013?

Post by goaties » Sat Jan 04, 2014 6:44 am

As a person who has never made a habit of carrying wads of cash, I would unreservedly assert that carrying plastic saves me money. I can think of many occasions where I saw something that was a wicked good deal (I carry a "pricebook" in my head....I'm just like that), but cost more than $40. Luckily, I had the plastic and was able to snap it up. Canned goods on special, scratch-and-dent items at the Home Depot, online holiday specials for clothing and sheets etc. etc. etc.

The rewards don't figure in my mind. The only thing I do is make sure I'm using the correct rewards card for the purchase (one is best for gas and groceries, one is best for everything else).

User avatar
wander
Posts: 2576
Joined: Sat Oct 04, 2008 9:10 am

Re: How much did your credit card rewards cost you in 2013?

Post by wander » Sat Jan 04, 2014 6:56 am

Jfet wrote:
wander wrote:Many places have different gas prices for cash and credit cards. If you buy with Cash, you would save about $.10. Each time costs me $2.00. 52 weeks means paying $104 extra with a credit card.
Ah, but those of us with a Costco Amex card would be buying that gas $0.20 to $0.25 cheaper plus get 3% cashback!
The nearest Costco is 30 miles away so I don't think it's practical to fill gas at Costco.

tbradnc
Posts: 1514
Joined: Wed Apr 02, 2008 8:30 am

Re: How much did your credit card rewards cost you in 2013?

Post by tbradnc » Sat Jan 04, 2014 7:10 am

Cash = Real money
Credit = Free for now

I can see how that would appeal to someone with limited resources but as stated about 3234 times in this thread, members of this forum are not representative of the wider population.

jowi
Posts: 57
Joined: Wed Nov 13, 2013 7:17 pm

Re: How much did your credit card rewards cost you in 2013?

Post by jowi » Sat Jan 04, 2014 8:56 am

I check my balance and think about my credit card bill a lot, so for me I don't think it's really that much different than cash in my wallet since it's a bookmarked website on my computer that I check often and have a 'limit' I impose on myself each month to try to stay under. I do see how this could be true for people (to spend more on a CC) and I probably do do it to some small extent, but not a whole lot. Just like I let our house go down to 56 degrees at night in this WI winter to save $$ even though my bill won't be here for a month, I think about my credit card bill coming and act accordingly.

User avatar
mike143
Posts: 1332
Joined: Thu Feb 02, 2012 8:55 pm

Re: How much did your credit card rewards cost you in 2013?

Post by mike143 » Sat Jan 04, 2014 9:50 am

tbradnc wrote:Cash = Real money
Credit = Free for now
cash = asset
credit = liability

assets - liabilities = net worth

As long as it doesn't effect your spending pattern than it equals the same.
Nothing is free, someone pays...You can't spend your way to financial freedom.

tbradnc
Posts: 1514
Joined: Wed Apr 02, 2008 8:30 am

Re: How much did your credit card rewards cost you in 2013?

Post by tbradnc » Sat Jan 04, 2014 9:55 am

mike143 wrote:
tbradnc wrote:Cash = Real money
Credit = Free for now
cash = asset
credit = liability

assets - liabilities = net worth

As long as it doesn't effect your spending pattern than it equals the same.
Totally agree. The "Cash = Real Money, Credit = Free for now" line of reasoning can be a problem.

User avatar
nirvines88
Posts: 391
Joined: Thu Dec 29, 2011 5:38 pm

Re: How much did your credit card rewards cost you in 2013?

Post by nirvines88 » Sat Jan 04, 2014 10:07 am

For 5% gas rewards: Don't spend anymore than I normally would, kinda hard to fill up more than my gas tank can hold. Definitely doesn't cause me to drive more!
For 6% grocery rewards: I'm pretty sure it has some kind of impact, although I eat everything I buy, so it could be worse
For 5% rotating categories: Mostly I just try to time certain purchases (e.g. Christmas shopping at end of year with Discover's 5% online shopping bonus), but I don't think it impacts my spending much. Exception: The first year I had a card with 5% back on restaurants...I'm pretty sure I ended up eating out at fast food joints more...don't need to give me an extra excuse not to cook!

Overall, I'm not much of a shopper so I guess CC impact is limited there. As noted above...CC has definitely had an effect on my food purchases, as much as I hate to admit it!
"Beware of little expenses, a small leak will sink a great ship" - Poor Richard

MnD
Posts: 3805
Joined: Mon Jan 14, 2008 12:41 pm

Re: How much did your credit card rewards cost you in 2013?

Post by MnD » Sat Jan 04, 2014 10:32 am

stinkycat wrote:I think part of the problem is that there is a sample selection bias on this forum. I think a lot of us are pathological calculators, if we didn't exist, Vanguard wouldn't exist and expense ratios would be much higher. We are the ones who care about such mundane (albeit important) things such as expense ratios. So I am not surprised that a lot of us don't really fall into a lot of the behavioral finance traps that many people fall into. We are just a bit weird in that sense.
And many of us actively exploit all advantageous loopholes in the behavioral traps.
I don't really like spending but getting the maximum benefits back makes for a interesting game.
If I really want something (which isn't much) I'm at the point in life where I just buy it and have many X times the resources to cover it regardless of the form of payment.
Spendaholics with limited resources are the ones that get suckered by the credit card deals.

urufenta
Posts: 5
Joined: Fri Jan 03, 2014 5:32 pm

Re: How much did your credit card rewards cost you in 2013?

Post by urufenta » Sat Jan 04, 2014 10:48 am

I just looked at the partial replies to the poll, and I suspect people think they are better than they REALLY are...I find it hard to believe so many people are immune to the allure of the credit card as to have 0 slippage and collect rewards. We are better at quantifying the reward than quantifying the ease of spending the CC allows..... Moreover, there is value attached to the extra spending as well ( the things you bought and the satisfaction that goes with it), obviously, and there is value attached to the "never out of money" convenience that is also hard to quantify.

User avatar
BTDT
Posts: 783
Joined: Sun Aug 29, 2010 10:40 am
Location: Grand Lake OK

Re: How much did your credit card rewards cost you in 2013?

Post by BTDT » Sat Jan 04, 2014 10:58 am

The number one use of my 'free' credit card is purchasing gas for which I get a 5% cash back. I never pay interest on credit cards.

I did pay an annual fee for an airline card for $300 worth of airline miles, which I used and then canceled the card. I also paid for a cash back card, that once you spend a certain amount in a certain time you get $300. I canceled the card once I received the $300, and the $1500 spent with the card was used for a needed home repair.

A few years ago I used a credit card to purchase US coins with cash back, but the government got-smart (????) and ended the use of credit cards to purchase US dollars. :oops:

jc
If past history was all that is needed to play the game of money, the richest people would be librarians.

tim1999
Posts: 3514
Joined: Tue Dec 16, 2008 7:16 am

Re: How much did your credit card rewards cost you in 2013?

Post by tim1999 » Sat Jan 04, 2014 11:04 am

The person who falls into this trap is probably the same one who focuses on the amount of the monthly payment when buying a car and not the actual selling price of the car. Easy to fool them by lengthening the amortization period or throwing in free oil changes. The average member of this forum knows better.

Sidney
Posts: 6696
Joined: Thu Mar 08, 2007 6:06 pm

Re: How much did your credit card rewards cost you in 2013?

Post by Sidney » Sat Jan 04, 2014 11:04 am

urufenta wrote:I just looked at the partial replies to the poll, and I suspect people think they are better than they REALLY are...I find it hard to believe so many people are immune to the allure of the credit card as to have 0 slippage and collect rewards. We are better at quantifying the reward than quantifying the ease of spending the CC allows..... Moreover, there is value attached to the extra spending as well ( the things you bought and the satisfaction that goes with it), obviously, and there is value attached to the "never out of money" convenience that is also hard to quantify.
Probably the only way to test this is to walk around with a wad of $100s in your pocket. If I sit down in a restaurant, I don't think that I will change what I order if I know I will be peeling off 5 $100 bills at the end vs. a credit card. However, if I don't carry a lot of cash, the logistics will affect my spending. I'm not about to go around and add up what I expect to spend, then tell the cashier to hang on while I go to the ATM. But that isn't a behavioral issue, it is a convenience.
I always wanted to be a procrastinator.

MnD
Posts: 3805
Joined: Mon Jan 14, 2008 12:41 pm

Re: How much did your credit card rewards cost you in 2013?

Post by MnD » Sat Jan 04, 2014 11:41 am

The poll should have a selection for greater than -2% "cost".
The "free" Costco business Amex is 4% back on gas and my "free" restaurant category card is 5% back.
Everything else is points/miles and I value these points/miles I receive at 2-3% based specifically on how I use them (only for "saver" level business and first class tickets or upgrades).
Since the sign-on bonuses can easily be double or triple the "spend" and you can rotate between banks/airlines annually, you are looking at 6-9% to 9-12% of your annual spend if you play the game carefully and systematically. Even if you have a "keeper" airline card for your favorite airline, the airline card fee is also also a money-maker due to free checked bags value (we save at least double the annual fee every year for at least a 100% hard cash return) plus the squisher value of priority boarding and club passes.

ajcp
Posts: 645
Joined: Fri Dec 13, 2013 6:44 pm

Re: How much did your credit card rewards cost you in 2013?

Post by ajcp » Sat Jan 04, 2014 1:08 pm

urufenta wrote:I just looked at the partial replies to the poll, and I suspect people think they are better than they REALLY are...I find it hard to believe so many people are immune to the allure of the credit card as to have 0 slippage and collect rewards. We are better at quantifying the reward than quantifying the ease of spending the CC allows..... Moreover, there is value attached to the extra spending as well ( the things you bought and the satisfaction that goes with it), obviously, and there is value attached to the "never out of money" convenience that is also hard to quantify.
There's an allure to paying a minimum $25 payment too, rather than paying off a couple hundred dollar bill in full. But it is extremely easy to quantify, and I suspect a "How much interest did you pay on credit card debt in 2013" poll with the same percentages would yield similar results.

User avatar
auntie
Posts: 277
Joined: Mon Dec 08, 2008 12:49 pm

Re: How much did your credit card rewards cost you in 2013?

Post by auntie » Sat Jan 04, 2014 1:50 pm

I first decide what I will buy and how much to spend. Then I decide if I will pay with cash, check, or credit card. If I get to the cash register and see that there's a discount for cash I decide if it's enough to be worth it. I can't decide how much I'll spend based on how I'll pay because I don't know how I'll pay.
High risk does not equal high reward. It equals high risk of no reward.

User avatar
mike143
Posts: 1332
Joined: Thu Feb 02, 2012 8:55 pm

Re: How much did your credit card rewards cost you in 2013?

Post by mike143 » Sat Jan 04, 2014 4:34 pm

urufenta wrote:I just looked at the partial replies to the poll, and I suspect people think they are better than they REALLY are...I find it hard to believe so many people are immune to the allure of the credit card as to have 0 slippage and collect rewards. We are better at quantifying the reward than quantifying the ease of spending the CC allows..... Moreover, there is value attached to the extra spending as well ( the things you bought and the satisfaction that goes with it), obviously, and there is value attached to the "never out of money" convenience that is also hard to quantify.
When I was a younger man I spent money I didn't have via credit cards now all I use them for is cash back and never pay interest. I put money back in the atm as I receive it since I can get 2% cash back on everything using a credit card. Credit cards are the new cash for the smart man. I don't use debit cards because they are not as secure as credit cards. I don't use my banks debit credit card because their cash back is much less than other credit cards. I save 45% of my income then live on whats left of that and try to save beyond that if possible.
http://money.cnn.com/2013/12/20/pf/expe ... dit-cards/
That's because debit and credit cards are treated differently by consumer protection laws. Under federal law, your personal liability for fraudulent charges on a credit card can't exceed $50. But if a fraudster uses your debit card, you could be liable for $500 or more, depending on how quickly you report it.
Nothing is free, someone pays...You can't spend your way to financial freedom.

FedGuy
Posts: 1232
Joined: Sun Jul 25, 2010 3:36 pm

Re: How much did your credit card rewards cost you in 2013?

Post by FedGuy » Sat Jan 04, 2014 5:50 pm

dailybagel wrote:(To me it sounds like people protesting too much.)
To me, it sounds like people thought that the way you phrased your poll was obnoxious, and wanted to take you down a peg.

Scotttheking
Posts: 195
Joined: Wed Apr 09, 2008 7:58 pm

Re: How much did your credit card rewards cost you in 2013?

Post by Scotttheking » Sat Jan 04, 2014 6:46 pm

I'm guessing 5-10% more, but really don't know. Did I spend $400 on dinner because of the CC? Maybe. Or maybe it was an offer to treat friends and having the CC meant I really didn't have to worry about the bill. Not having to actively track if I have enough cash on me is nice. My spending is within the realm of reasonable so I don't worry beyond that.

MnD
Posts: 3805
Joined: Mon Jan 14, 2008 12:41 pm

Re: How much did your credit card rewards cost you in 2013?

Post by MnD » Sat Jan 04, 2014 7:25 pm

People that are cash equivalent and cash flow limited use credit cards (and other things like mortgage equity withdrawal, 72 month car loans etc.) to create bigger paychecks and pull forward future consumption to the present. If you aren't cash limited, credit cards have zero "appeal" to enlarge spending and are used instead to simplify accounting, smooth/organize cash flow and collect small rewards. It's very likely if you aren't cash limited that you'll charge everything possible and have "autopay in full on due date" set up. So if anything the large monthly payment with a clean one-page accounting brings home the message that many small purchasing decisions along with fixed costs have significant spending consequences.

If I wanted 5 BMW's I'd just write a check for them (after selling some things in taxable with a few mouse clicks) so I'm struggling trying to see where having a few credit cards cards in my wallet makes me spend more.

MichaelM24
Posts: 165
Joined: Fri Jan 03, 2014 6:45 pm

Re: How much did your credit card rewards cost you in 2013?

Post by MichaelM24 » Sat Jan 04, 2014 7:29 pm

If you aren't cash limited, credit cards have zero "appeal" to enlarge spending and are used instead to simplify accounting
Exactly.

tj
Posts: 2236
Joined: Thu Dec 24, 2009 12:10 am

Re: How much did your credit card rewards cost you in 2013?

Post by tj » Sat Jan 04, 2014 11:17 pm

If you aren't cash limited, credit cards have zero "appeal" to enlarge spending and are used instead to simplify accounting

Even if you are cash limited, it can still be used to simplify accounting. I don't understand the people who spend $ they don't have.

Lente
Posts: 127
Joined: Thu May 12, 2011 8:26 am
Location: San Diego

Re: How much did your credit card rewards cost you in 2013?

Post by Lente » Sun Jan 05, 2014 12:46 am

The funny thing about behavioral finance is everyone thinks they are immune to it. It would be interesting if we could somehow do valid behavioral finance studies on this group to see how immune we really are.

I guessed 2-5%. While I don't necessarily "spend more" dollar wise, I know that I don't typically carry much cash on me; so in instances where I am cash constrained, I have to constrain my spending (let's say lunch out). Probably doesn't affect my overall spending as I stick to a budget, but I will receive less "dining out" trips if such an event were to occur.

Also agree with the gas pump - i most certainly pay at the pump even though I know I could save myself 80 cents a fill up (~3% premium on gas). Drives my wife insane.

User avatar
White Coat Investor
Posts: 13586
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth

Re: How much did your credit card rewards cost you in 2013?

Post by White Coat Investor » Sun Jan 05, 2014 1:12 am

I use a credit card to help me to spend more. It divorces me from the psychologic pain caused by using cash. Chronic oversavers like most Bogleheads sometimes need assistance in spending.

Perhaps a bit tongue in cheek, but your assumption that spending more is bad isn't necessarily correct. I save "enough." My credit card is convenient. It even pays me tax-free rewards/discounts. It makes it easy to track spending. It might even make spending less painful. I use an ATM once every couple of years. If I ever get mugged, I'll probably be rage-stabbed because there is so little cash in my wallet.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

Professor Emeritus
Posts: 2628
Joined: Mon Aug 13, 2012 6:43 am

Re: How much did your credit card rewards cost you in 2013?

Post by Professor Emeritus » Sun Jan 05, 2014 2:15 am

If you can and do pay off all your CC every month without incurring interest or reducing your savings goals that is excellent evidence that you overall spending is under full control. I once incurred an interest charge due to sheer negligence in failing to pay the card. That was in 2004.

Winthorpe
Posts: 278
Joined: Mon Apr 13, 2009 12:29 am

Re: How much did your credit card rewards cost you in 2013?

Post by Winthorpe » Sun Jan 05, 2014 3:05 am

Wow. I'm just a little surprised that this has been such a polarizing poll.

I think Dave Ramsey has convinced many that credit cards are the devil. For most of his following, credit cards are the devil. Then again, the people that hang on his every word are typically unsophisticated types whose finances are shambles. Dave is correct in steering these people away from credit cards, big 6-year car loans, lottery tickets, whole life, etc -- most of them don't know any better until he tells them. Heck, he's probably correct on this for the majority of the population. (My point is not to bash Dave Ramsey. I think his show is entertaining, and I think he probably helps more people financially than any other "guru" out there.)

I think your average Boglehead is likely much more rational and strategic with buying decisions. I will usually plan and research each >$100 good or service I plan to purchase. If I go to the grocery store, I have a list with me. I get what is on the list and leave. I can't think of the last time I made an impulse buy.

I grocery shop at Aldi and pay cash because they don't accept credit cards. The savings are much more than I would get with my 2% cash back AmEx at some other store. I don't purchase less food because I'm paying cash. I get what's on the list. I use my 5% cash back PenFed card at the gas pump. My gas tank is the same size with cash or the credit card. I don't try to drive more because I know that I can get 5% cash back with my PenFed card. I got a 75 gallon fish tank at a local store, and I paid cash. They offered a discount for cash pay that was better than my 2% AmEx card. I would have purchased the same fish tank either way. I pay electric bills, phone bills, garbage collection, insurance premiums, and others with my 2% AmEx. I don't use more or less electricity, etc knowing that I will get cash back rewards.

I pay off the balance of my two credit cards every week, just part of my cash management habits.

Best Regards,
Winthorpe

So, for me, I spend the same either way. The cash back from the cards is just a nice little bonus.

Winthorpe
Posts: 278
Joined: Mon Apr 13, 2009 12:29 am

Re: How much did your credit card rewards cost you in 2013?

Post by Winthorpe » Sun Jan 05, 2014 3:19 am

EmergDoc wrote:I use a credit card to help me to spend more. It divorces me from the psychologic pain caused by using cash. Chronic oversavers like most Bogleheads sometimes need assistance in spending.

Perhaps a bit tongue in cheek, but your assumption that spending more is bad isn't necessarily correct. I save "enough." My credit card is convenient. It even pays me tax-free rewards/discounts. It makes it easy to track spending. It might even make spending less painful. I use an ATM once every couple of years. If I ever get mugged, I'll probably be rage-stabbed because there is so little cash in my wallet.
Tongue in cheek, but a lot of truth in your line of thinking. My wife and I are both naturally very frugal types. Two 6-figure incomes but from the outside, we look more like an $80k combined household. We are happy with our LBYM lifestyle, and financial independence is rushing up on us more and more quickly. We splurge sometimes, usually with travel. If our credit cards were to help us spend a little bit more and enjoy it, more power to us. However, I do experience with pain with the credit card because I track it so closely.

Winthorpe

jon-nyc
Posts: 925
Joined: Sun Nov 15, 2009 9:02 am
Location: New York

Re: How much did your credit card rewards cost you in 2013?

Post by jon-nyc » Sun Jan 05, 2014 7:12 am

Never seen anyone preach in the form of a poll before.

TT
Posts: 495
Joined: Sat Oct 17, 2009 7:27 am

Re: How much did your credit card rewards cost you in 2013?

Post by TT » Sun Jan 05, 2014 8:04 am

Zero cost - A disciplined approach to investing should be complemented by a disciplined approach to spending :moneybag

Harold
Posts: 3154
Joined: Sat Mar 03, 2007 7:50 pm
Location: San Francisco

Re: How much did your credit card rewards cost you in 2013?

Post by Harold » Sun Jan 05, 2014 10:07 am

Scotttheking wrote:I'm guessing 5-10% more, but really don't know. Did I spend $400 on dinner because of the CC? Maybe. Or maybe it was an offer to treat friends and having the CC meant I really didn't have to worry about the bill. Not having to actively track if I have enough cash on me is nice. My spending is within the realm of reasonable so I don't worry beyond that.
A refreshingly honest answer.
EmergDoc wrote:I use a credit card to help me to spend more. It divorces me from the psychologic pain caused by using cash. Chronic oversavers like most Bogleheads sometimes need assistance in spending.
As is this one.
Winthorpe wrote:Wow. I'm just a little surprised that this has been such a polarizing poll.
The poll responses seem pretty solidly on one pole.

To me, this poll is interesting because it's an illustration of how we deceive ourselves financially. (Housing costs being less than 1% and the prudence of maintaining loans so we can invest are others that immediately come to mind -- there are plenty more.) Beyond merely commenting, people are stridently and indignantly insisting that they're saving money by using credit cards -- and are even angered by the tone of the poll. Pretty fascinating stuff.

The nature of a pernicious bias is that we absolutely cannot see it in ourselves. Can't speak for what everyone should do, but I actively seek opportunities to identify my own biases so I can truly understand myself better and make any changes that may (or may not) be needed -- in finance or in all other aspects of life.

User avatar
jeffyscott
Posts: 7366
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: How much did your credit card rewards cost you in 2013?

Post by jeffyscott » Sun Jan 05, 2014 10:09 am

Winthorpe wrote:
EmergDoc wrote:I use a credit card to help me to spend more. It divorces me from the psychologic pain caused by using cash. Chronic oversavers like most Bogleheads sometimes need assistance in spending.

Perhaps a bit tongue in cheek, but your assumption that spending more is bad isn't necessarily correct. I save "enough." My credit card is convenient. It even pays me tax-free rewards/discounts. It makes it easy to track spending. It might even make spending less painful. I use an ATM once every couple of years. If I ever get mugged, I'll probably be rage-stabbed because there is so little cash in my wallet.
Tongue in cheek, but a lot of truth in your line of thinking. My wife and I are both naturally very frugal types. Two 6-figure incomes but from the outside, we look more like an $80k combined household. We are happy with our LBYM lifestyle, and financial independence is rushing up on us more and more quickly. We splurge sometimes, usually with travel. If our credit cards were to help us spend a little bit more and enjoy it, more power to us. However, I do experience with pain with the credit card because I track it so closely.

Winthorpe
I need this encouragement to spend more too. My wife and I spent 43% of our gross income last year (and about 1/2 of that spending was taxes and other deductions from paychecks).

We usually get groceries from a mix of Woodman's and Costco. When I shop at Woodman's, which does not take credit, I typically spend $25-30. When I shop at Costco, I typically spend $75-150. So clearly the credit card is causing me to spend 3-5 times as much.
press on, regardless - John C. Bogle

Jfet
Posts: 1081
Joined: Tue Dec 21, 2010 7:20 pm

Re: How much did your credit card rewards cost you in 2013?

Post by Jfet » Sun Jan 05, 2014 10:27 am

jeffyscott wrote: We usually get groceries from a mix of Woodman's and Costco. When I shop at Woodman's, which does not take credit, I typically spend $25-30. When I shop at Costco, I typically spend $75-150. So clearly the credit card is causing me to spend 3-5 times as much.
Something is wrong with that logic. Are you getting 3 to 5 times more items (that you actually use) at Costco vs Woodman's? If so, then the CC is causing you to save money, not spend more.

By your logic if I need 24 gallons of gas to commute to work each month, but I pay $20 cash for 6 of those gallons and charge $60 on the CC for 18 of those gallons, then the credit card is causing me to spend 3 times as much.

Caduceus
Posts: 1731
Joined: Mon Sep 17, 2012 1:47 am

Re: How much did your credit card rewards cost you in 2013?

Post by Caduceus » Sun Jan 05, 2014 12:15 pm

The poll responses seem pretty solidly on one pole.

To me, this poll is interesting because it's an illustration of how we deceive ourselves financially. (Housing costs being less than 1% and the prudence of maintaining loans so we can invest are others that immediately come to mind -- there are plenty more.) Beyond merely commenting, people are stridently and indignantly insisting that they're saving money by using credit cards -- and are even angered by the tone of the poll. Pretty fascinating stuff.

The nature of a pernicious bias is that we absolutely cannot see it in ourselves. Can't speak for what everyone should do, but I actively seek opportunities to identify my own biases so I can truly understand myself better and make any changes that may (or may not) be needed -- in finance or in all other aspects of life.
But are the Bogleheads that have responded to this poll so far really disagreeing? It seems to me that most people agree that they spend more with credit cards (in the sense that credit cards are more convenient than cash), but they read the poll more specifically as asking if the carrot of credit rewards influenced spending. At least that's how I'm reconciling the numbers on the poll with the actual responses posted in the thread. I mean, if the poll had asked if people spent more with credit cards rather than cash, based on the responses, a majority would probably have answered "Yes."

And, is the implication that what is actionable here that people should stop using/reduce usage of credit cards? If one is disinclined to take the forum posters at their word that they're already pretty self-conscious about spending, is the solution to transition to a cash-based system instead? In what way is this self-knowledge useful?

User avatar
jeffyscott
Posts: 7366
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: How much did your credit card rewards cost you in 2013?

Post by jeffyscott » Sun Jan 05, 2014 12:31 pm

People are angered by the tone of the poll? Golly, I can't imagine why with one of the potential responses being:
0 to -2%. I am completely immune to all forces of behavioral finance that have been repeatably identified in economic studies, and I collected credit card rewards
press on, regardless - John C. Bogle

Harold
Posts: 3154
Joined: Sat Mar 03, 2007 7:50 pm
Location: San Francisco

Re: How much did your credit card rewards cost you in 2013?

Post by Harold » Sun Jan 05, 2014 12:34 pm

Caduceus wrote:seems to me that most people agree that they spend more with credit cards
Seems to me that most people are saying they spend exactly the same (the credit card being merely a convenient accounting tool that gives them rewards back to boot).

Harold
Posts: 3154
Joined: Sat Mar 03, 2007 7:50 pm
Location: San Francisco

Re: How much did your credit card rewards cost you in 2013?

Post by Harold » Sun Jan 05, 2014 12:40 pm

jeffyscott wrote:People are angered by the tone of the poll? Golly, I can't imagine why with one of the potential responses being:
0 to -2%. I am completely immune to all forces of behavioral finance that have been repeatably identified in economic studies, and I collected credit card rewards
That's part of what's so fascinating to me -- how people are reacting when being presented with an uncomfortable truth.

(To be fair, probably not all studies have reached that conclusion -- but dailybagel didn't say that either.)

ajcp
Posts: 645
Joined: Fri Dec 13, 2013 6:44 pm

Re: How much did your credit card rewards cost you in 2013?

Post by ajcp » Sun Jan 05, 2014 12:57 pm

Harold wrote:
jeffyscott wrote:People are angered by the tone of the poll? Golly, I can't imagine why with one of the potential responses being:
0 to -2%. I am completely immune to all forces of behavioral finance that have been repeatably identified in economic studies, and I collected credit card rewards
That's part of what's so fascinating to me -- how people are reacting when being presented with an uncomfortable truth.

(To be fair, probably not all studies have reached that conclusion -- but dailybagel didn't say that either.)
To be fair, that's no more of a truth than:

"The average American household has over $15,000 (http://www.nerdwallet.com/blog/credit-c ... household/) in credit card debt. How much debt are you in because you use credit cards?"

Over $20,000
$10,000-20,000
$0-10,000
$0 - I am completely immune to the appeal of being able to buy something I want as soon as I want it rather than saving for it and buying it later, so I have no credit card debt.

python99
Posts: 52
Joined: Fri Feb 15, 2013 1:15 pm

Re: How much did your credit card rewards cost you in 2013?

Post by python99 » Sun Jan 05, 2014 1:01 pm

I use cash back credit card for everything I can..then pay it off in full every month....for 2012 I earned $3,205 in cash back rewards credited into my bank account...it is like free money!

MnD
Posts: 3805
Joined: Mon Jan 14, 2008 12:41 pm

Re: How much did your credit card rewards cost you in 2013?

Post by MnD » Sun Jan 05, 2014 1:28 pm

The median working-age american household has saved $3000 in retirement accounts.
http://www.nirsonline.org/index.php?opt ... iew&id=770
How much has your household saved?

A. $0
B. $1-1,500
C. $1,501-$3,000
D. $3,001-$6,000
E. $6,001-$4,000,000 I am completely immune to the universal appeal of living paycheck to paycheck and the spendaholic lifestyle and have developed superhuman-like powers to live beneath my means.

If a significant percentage of you Bogleheads respond E, I'm going to claim you are being dishonest with yourselves, in denial of numerous studies and just generally liars.
Last edited by MnD on Sun Jan 05, 2014 2:08 pm, edited 1 time in total.

ThatGuy
Posts: 861
Joined: Fri Feb 05, 2010 9:00 am

Re: How much did your credit card rewards cost you in 2013?

Post by ThatGuy » Sun Jan 05, 2014 1:51 pm

Harold wrote:Seems to me that most people are saying they spend exactly the same (the credit card being merely a convenient accounting tool that gives them rewards back to boot).
It's clear that no one is going to change your mind, you've already made it up to believe one thing even though a multitude of people tell you that the belief is not only false, but based on an inaccurate foundation.

But, let's give this one more go. Seems to me that most of us are telling you that we are constrained by the amount of money available, not the form that money takes. I don't spend more because I use a credit card, but I would certainly spend more if I had more money. I'd finally go on that year long 'round-the-world odyssey if money were no object. If a luxury car cost less than 1% of my liquid assets I'd finally spring for a Tesla S, or maybe an Aston Martin to be like Bond.

Not to mention the caviar everyday and Whole Foods for all groceries. But, alas, I am not Trump, and so I have to shoehorn my desires into my meager paycheck.
Work is the curse of the drinking class - Oscar Wilde

placeholder
Posts: 3958
Joined: Tue Aug 06, 2013 12:43 pm

Re: How much did your credit card rewards cost you in 2013?

Post by placeholder » Sun Jan 05, 2014 3:09 pm

What's happened is that people who state that they don't spend more are branded as lying or delusional so I fail to see what the point of the poll was other than to harass a segment of the community.

MoonOrb
Posts: 963
Joined: Thu Jan 24, 2013 6:58 pm

Re: How much did your credit card rewards cost you in 2013?

Post by MoonOrb » Sun Jan 05, 2014 3:27 pm

The issue is further complicated because the poll question is "How much did your credit card rewards cost you in 2013?" but the argument advanced in the links to articles about the psychology of spending have almost nothing to do with rewards.

So responders can be completely honest in answering the poll question even if it's also true that they spend more with credit cards than they might if they used only cash: but the reason for this wouldn't be because of the rewards, it would because of the reasons set forth in the research cited in the articles, which are about the perceived transparency of the transactions, not rewards.

Of course, that puts aside entirely the question of whether the Boglehead responders are more likely to be "immune" from the forces of behavioral psychology that affect the subjects of the research. I'm surprised that this seems so controversial: Bogleheads are significant outliers in how they handle their personal finances. If any group would behave differently, this is that group.

And moreover, there's an issue with the use of the word "cost," which is a loaded term. I submit that a more neutral phrasing would have been "how much more did you spend" as a result of using credit cards. "Cost" suggests--at least to me--a value judgment, implying that you got less value from the purchase. If I'm happy with the amount on spending and investing, does it really matter if I spent more? It's a given that I'm going to be spending money.

Locked