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- [00:10]
A
Hello and welcome to the Meta Points edition of Slate Money Travel. This is the one I've been really looking forward to. I have been searching high and low for an unconflicted person. And I found someone who is almost kind of sort of perhaps if you squint under conflicted, who can talk to us about points. We've had one episode about points from, like, the airline's point of view and from the credit card company's point of view and how they make money from that. And that was super interesting and I learned a lot. But then I got a bunch of requests and it was basically, well, talk to me about, give me some, like, news I can use here. Is it actually worth getting involved in this whole points economy? And, and I, and it's very hard to find an expert on this because there's a lot of people who make a lot of money by selling you cards, which are, you know, part of the points economy, and by talking about how wonderful these schemes are. And they're obviously conflicted by this. And so I have found Mr. Ron Lieber.
- [01:18]
B
Hello.
- [01:19]
A
Hello, Ron. You are connected in various ways to the New York Times and its subsidiaries. So we are going to talk to you. Ron is the personal finance columnist at the New York Times and has been for how long?
- [01:33]
B
11 years or so now, A long time.
- [01:35]
A
And so he's been writing about this kind of stuff for a long time. And then now he's also joined the.
- [01:41]
B
Advisory board of Wirecutter, of the Wirecutter Money site.
- [01:45]
A
The Wirecutter Money site, which is going to be entering this world, which is why he's maybe a little bit less unconflicted than you might ideally hope. But that has not changed his opinion on any of these things. So, Ron, we're going to talk to you all about basically whether it's worth people's time and money to start paying annual fees for cards and care about this thing, because it's a large cognitive load which I'm sure that most of us really don't need in our lives. All of that is coming up on Slate Money Travel. Okay, Ron, you are about to do what with wire cutter money?
- [02:21]
B
So, in addition to my duties as the personal finance columnist, the your money columnist for the New York Times, I am also on the advisory board of something called Wirecutter Money. Wirecutter, as many listeners may know, is a site that helps people find the best products to put to use in their life, things to purchase. And when you buy things on Wirecutter, Wirecutter gets a Commission A little cut 1, 2, 3%, maybe from Amazon or Walmart or wherever it is that we're sending you to. Wirecutter Money is going to be a guide to financial products and services, starting with credit cards. Now, I have some expertise here. I am an obsessive personally, I've been chasing and playing and winning the miles and points game and cards game for the better part of a quarter century now. I don't travel over the ocean unless it's in the front of the plane anymore. So I know how to play that game and win. I've been writing about it sporadically, journalistically, talking to all the smartest people in the world about it for years. But viewers should know or listeners should know that I am now in a situation where while I'm not being paid by Wirecutter, I am helping them out. Wirecutter money is not earning any revenue yet, but once it does, that will kind of flow up to New York Times corporate headquarters and might well benefit the newsroom in some way, shape or form at some point in the future.
- [03:40]
A
But to be clear about this, Wirecutter here on too has been making, as you say, if you send people an Amazon link, then Amazon will kick you back a couple bucks. It's not massive money, but it adds up if you do it for like millions of people. There's a huge difference, at least in my mind, between a couple bucks if someone buys your preferred brand of shampoo on Amazon versus the fees that the credit card companies pay for sending new prospects to get a new credit card. Those start in the hundreds of dollars, right?
- [04:16]
B
I don't know that they start in the hundreds of dollars. I think they start, they can reach the low hundreds of dollars much depend site the volume and the card, but they can definitely reach a three digit amount. That is true.
- [04:29]
A
We've talked on this show in the past about how the credit card companies make money from these rewards cards and how the banks make and how the airlines and the hotels make money from these rewards cards. And obviously they make so much money from these rewards cards that they're willing to pay people like Wirecutter money hundreds of dollars to get people to sign up for these cards. Which means basically that my simple act of signing up for a card is worth hundreds of dollars to just work out of money and presumably much more than that to the credit card companies and the airlines and whatnot. Who's losing in that game? Who's being ripped off?
- [05:12]
B
There are a number of losers here. I think the first loser is merchants. Merchants have to pay 2 or 3%, sometimes even depending on their size and the nature of their deal, in order to accept credit cards in first place. And often the rewards cards cost more for the merchant to accept. Right. So merchants are arguably losers. Now you could also make a case that people wouldn't spend as much in the stores if they didn't have these cards and if they didn't have these incentives through their miles and points to spend more. So you can argue that one until the cows come home. But merchants certainly would argue that they are losers in many instances.
- [05:50]
A
And there is no, I mean, we had a little bit of regulation in Dodd Frank about the fees, the swipe fees on debit cards, but there is basically no regulation on the swipe fees for credit cards. And the credit card companies can, more or less, they can charge basically anything they want. Right?
- [06:08]
B
More or less. Every year or two you get a skirmish where a big retailer decides to start experimenting with discounts for cash. Or Kroger is playing some games with Visa right now, refusing to accept Visa, a few of its subsidiaries because of these merchant fees. But it never really amounts and legislation wise, these things are always dead on arrival when people try and pass them.
- [06:33]
A
So the thing which I'm most interested in is these annual fees for the credit cards because it seems to me that the merchants, we're already being charged a little bit extra by the merchants to make up for the fact that they have to pay all of these ever rising interchange fees. Given that we're all paying a little bit extra when we buy more or less anything in a store or online, why does it make sense to pay even more on top of that to get one kind of credit card rather than another? It seems like unless you really spend a huge amount of time thinking about and organizing your points strategy, aren't we all really better off if we just don't?
- [07:21]
B
No. Here's why. And it's changed a little bit over time. So let me sketch out the continuum a little bit. As of three to five years ago or more, you would just do a simple math problem where you would look at the number of dollars that you spent on the card each year and your rough estimate of the value that you got through the points or the miles that you acquired through that spending, you would figure out how much that was worth to you and then you would subtract the annual fee and see if you were coming out ahead. And at the end of the day, if you're spending more than 20, 25, $30,000 a year, call it on your card, you're almost always coming out ahead unless, and this is a big caveat, unless you end up in a situation where you're carrying a balance, where you overspend, or you have a hiccup in your income and then you're paying interest. And that blows the whole math out of the water. Now, the thing that's changed in the last couple of years, particularly with the airline cars, there's an increasing sense both that the frequent flyer miles are harder to use and that the airlines have raised the prices of free flights in miles and added other fees and other onerous terms to the extent that the miles are actually worth a fair bit less than they used to be. So enter much more lucrative point systems. Object one, Chase Sapphire, which was, you know, there was a mania for that card a couple years ago. A lot of people still think it's the biggest and the best. Or enter the perks that the airline cards are now starting to offer. Things like not having to pay to check your bag or other things that can save you money. If you travel with a family and they give you four free checked bags and you're not paying that hundred dollars when you get to the airport, all of a sudden the annual fee starts to seem like a bargain. In fact, it goes away when you save those baggage fees. The math has started to become a little bit more complicated when the cards come with perks that you have to value in addition to points that you have to value.
- [09:15]
A
Obviously you are one of these people who is extremely good at maximizing the value of the points that you get from your cards. And you pick your card very carefully and you may or may not have loyalty to certain airlines or hotels, and you try and work out that if you do, you know, if you book certain travel on, you know, using certain types of points, then you get a financial benefit that is much higher than the annual fee of the credit card. And that's something which a lot of people can do. And then you can even take it to the next level of like, applying for multiple cards and using them like just enough to get the sign on bonuses and all of this kind of stuff. And their whole Reddit community is full of this kind of stuff. And bless those people. And I have no interest in those people. For anyone who is normal, like, what does the actual normal person with points do? Do they spend their points? Do they get value out of their points? Do they just wind up, you know, randomly watching them accumulate and get inflated away? What proportion of people actually get value?
- [10:20]
B
I think a Lot do. But you have to sort of draw a flowchart of use cases whenever you're trying to give someone advice about this. And I do these sort of desk side pick your credit card conversations with people at the New York Times. And so I ask them a series of questions, right? I say, is the point of the exercise to travel for free or just to get cash back? And if you want to travel for free, do you want to travel in the front of the plane or do you not care about traveling in the front of the plane? If you also want to travel, are you traveling with children under the age of 22? Because if you are, you're bound to school vacation schedules in the summer. And that's the hardest time to redeem the miles, right? So maybe you don't want miles, maybe you want points, or maybe you value simplicity above all else. You know, you want to play the game. You spend a lot of money, but you want it to be simple, in which case you just get yourself a cash back card, gives you a 2% straight refund. You spend as much as you want or you need to. If you spend $50,000 a year, that's $1,000 in your pocket that you didn't have otherwise and you're done.
- [11:24]
A
Can you explain to me how when it comes to most of these cards, the perks. Things are changing a little bit now with the restaurants, but historically speaking, and still overwhelmingly, the way that these cards are marketed and sold is all around travel. Why is that? Why is travel such a central part of the perks and miles economy?
- [11:51]
B
It's all about aspiration. And you can break that aspiration down in a couple ways. Some people just aspire to beat the system. I'm one of those people. Get something for nothing, put one over on the man, be an unprofitable customer, win the game, right? Some people are just programmed that way. Others are even more strategic. They want to travel like a baller, like a winner. Like the people you see on Instagram, you know, laying down on the business in the first class seats on Cathay Pacific and Singapore Airlines. They want to have that experience. They value it, right? They never would or could pay 10,000 or $15,000 per seat to purchase that. But they want to have that experience and it's meaningful to them. So they're going to devote a not small amount of time or energy to tracking it and chasing it and getting it.
- [12:50]
A
And then there's the other thing which I'm fascinated by in terms of the sort of perks and the Aspiration is the rise of the metal credit card, which is really in the past few years. Right. There used to be like, what was it? Was it. The Amex Black card was the first one.
- [13:06]
B
I don't believe that Amex Black was metal at first. It may be metal now, but it was not when it came out of the gate in 2002.
- [13:15]
A
So, like, it even post dates the Amex Black card. The metal card. At some point, someone decided that, like, the metal card was gonna make people feel special.
- [13:24]
B
Yeah, it was Chase Sapphire that brought it into the mainstream a couple years ago. There might have been one or two that predated that.
- [13:29]
A
And now. And now it's like everywhere. I mean, even, even, like, even Acorns has a metal credit card now.
- [13:35]
B
Yeah, it really weighs your wallet down. I don't like it, but I feel.
- [13:38]
A
Like a lot of people love it. There's. There's a little sort of micro dopamine hit that people get from taking out a metal credit card and going, look at this. Clunky, clunky. Or am I. Am I completely wrong?
- [13:49]
B
No, it makes noise, right? There's a plunk factor. You know, plunk. You'd slap it down on the table and it feels hefty and it's substantial in your hands. And it's easy to sort of yourself into the idea that if this thing is big and weighty and loud, it's going to deliver big and weighty and loud rewards. I totally understand why the card companies would try and do that.
- [14:13]
A
You're like a rationalist. You don't believe there's any real value to having a metal girl just because it's metal.
- [14:19]
B
No, there's no correlation between the weight of the card and the size of the rewards. It stands to reason that if the card companies are going to pay more to produce these metal cards, they're probably going to have to charge more. Then if they're making more, then hopefully the rewards are better. But I don't know if I would necessarily pick my card on the basis of how it clunks on the gram and ounce.
- [14:43]
A
But presumably the cost of producing a metal card is way lower than the costs of paying wire carta money for sending customers my way. We're not talking hundreds of dollars, right?
- [14:55]
B
No, this is a marketing expense above all else.
- [14:59]
A
Just as I know that you said you're saying that everyone is different, but for. I have this feeling that for most people who don't, you know, want to spend a lot of time thinking, if you do want to spend A lot of time thinking about this. There's no shortage of resources on the Internet. Go knock yourself out. There's rabbit holes you can fall down and never come out of. But if you don't want to spend a lot of time thinking about this, does it make it. And you just basically say, just give me a card to use and I'll use it. For those people, you're saying it probably does make sense to pick a card with an annual fee and then just, I guess, try and use whatever points or miles or cash. If you don't want to do any thinking, pick a cashback one. And if you want to do a little bit of thinking, pick loyalty 1 or a points 1 and then be loyal or spend your points.
- [15:45]
B
I think that's right. Look, if a card with an annual fee of $150 or even $450 delivers twice as many rewards as one that's free, if you can spend enough to get twice the rewards, the $150 or $450 fee will cease to matter after a certain amount of spending during the year, at which point, again, you've become less profitable for the company. So you're winning. It just depends on how much you're going to spend each year. Now, again, the biggest caveat here, don't get yourself in debt. But a secondary caveat revolves around a number of academic studies. There's a handful of them that have been done over the last 20 years that all say the same thing, which if you use a credit card instead of cash, there's a reasonable chance, especially in some spending categories, that you will spend more than you otherwise would have if you spend cash. Now, all of us who play the cards game believe that we are above average, right? That we would not fall victim to that.
- [16:44]
A
I totally fall victim to this. I mean, I'm 100% happy to admit that when I'm leaving a tip for a taxicab, say, like, you know, whereas in cash I would like round up a couple bucks and with the, you know, the clever little swipey swipeys, I'll just click that 20% button and it's much more than a couple bucks.
- [17:05]
B
As you may recall, back when they started taking credit cards in taxis, the drivers were up in arms about the fact that the tips were going to be coming in via plastic and they might not get them right away. And this was a whole thing until a few months into it, they realized that the tips were much higher than they used to be. And then there was nowhere complaint.
- [17:24]
A
So yeah, so we do spend more money just by dint of having these cards, but is there any reason to believe that we spend more money on more expensive cards versus cheaper cards?
- [17:36]
B
No one has studied that in particular. In other words, are you going to overspend more on Chase Sapphire than you might on Chase Copper? Right. No one has put those two things together in a study yet. I don't know if you would find that much of a difference, frankly.
- [17:53]
A
But in general, as a good personal finance columnist, you're going to still say that when push comes to shove, you should still try and minimize your spending. Right? I mean, that's like we should try and be budgeting and saving and all of these other good things which credit cards mitigate against.
- [18:09]
B
Right? I mean, the thing that I come back to whenever I start to ask myself the hard questions about this, Ron, aren't you causing problems for the local merchants that you don't want to be replaced by Chase branches when you use your Chase Sapphire card there? Isn't it more ethical to use cash in those stores? Or, Ron, aren't you overspending at this place or that place because you're using a credit card and not because you're using cash? Every time I have that thought, I think, well, okay, so I could go cold turkey out of some ethical or budgetary stance, but then I'm a loser. I'm a loser because in each of these stores, they're still charging 2% more than they might otherwise in order to pay for the credit card fees that are accruing to them because of everybody else's behavior. So until we all throw down our cards and burn the metal in the streets, the prices will continue to be what they are. And anybody who opts out is still going to be paying more, but not getting the benefit from it.
- [19:07]
A
Which is why, yes, there's a collective action problem here. And the only real solution is for the. I guess it's not even the Fed. The Fed doesn't govern this. Right? If you want to regulate swipe fees and put a cap on how high they can get, then that needs to be done by Congress, right?
- [19:24]
B
Or the merchants who could just say, no more cards. Right? And up until 10 or 15 years ago, that was a somewhat reasonable proposition. You would still go into restaurants sometimes and they would just not take any cards at all. Now we've got the opposite thing going on where sweetgreen won't take cash and American Airlines won't take cash, and all these places refuse to deal with cash.
- [19:45]
A
Cash is not free. I mean, there are definite costs associated with handling cash.
- [19:50]
B
Cash gets stolen and.
- [19:51]
A
Yep, yep, dirty. Yeah, but, but the, the, one of the things that you used to see was that merchants wouldn't accept American Express because American Express was more expensive and so they could price discriminate that way. But you can't do that with Chase Sapphire Reserve. Like if you accept one Visa card, you have to accept them all. You can't just say, well, I will accept the low interchange fee Visa cards, but I won't accept the high interchange Visa cards. Literally, it's impossible to do that.
- [20:23]
B
Many merchants would like to do it and some have speculated on how it might be over the years. There's also been restrictions from the card companies about the ability to differentiate between different cards from the same families. That's another hurdle. So it's challenging. But the thing that Chase finally understood was after years of having their clocks cleaned by American Express, on the corporate card front, certainly where they're still getting their clocks clean, and on the super premium cards, they said, you know what? Why can't we, why shouldn't we compete here? Especially given that we have an advantage in terms of merchant acceptance? Because there's still some number that refuse to take Amex. Amex has worked pretty hard to try and narrow the gap between the number of merchants, merchants that accept Visa and Master Art and the ones that don't accept Amex versus Do. But there's still a decent gap there. You still run into places that won't.
- [21:20]
A
Take Amex, especially in Europe and outside.
- [21:23]
B
The US Especially outside the United States.
- [21:24]
A
But yeah, so that's the way the world is. Basically. The Visa and MasterCard are encroaching on Amex territory. And while merchants had one plausible line of defense against Amex, they don't have that against Visra and mastercard.
- [21:39]
B
Not really. I mean, they can do what Kroger's trying to do, which is stand up in a sort of experimental fashion in certain subsidiaries in certain geographic regions and just see, in essence, whether consumers will revolt or whether they'll just find another card to use. The results of that experiment are going to be super interesting.
- [21:59]
A
Okay, well, Ron Leiber, thank you very much for coming onto Slate Money Travel. This was super interesting. I'm going to go out and do absolutely nothing with my credit cards because I'm very lazy and I have no idea what I'm doing. But anyone who actually wants to run their finances sensibly, you're every Sunday in.
- [22:17]
B
The New York Times, Saturday in print.
- [22:19]
A
Friday online, Saturday in the New York Times. Check out Ron's column. Thank you for coming in.
- [22:25]
B
It is a pleasure.