Fools with tools – credit cards

Well hello SST.

Once again I am going to have to disagree with you. I think you confuse your personal ideology with simple common sense. I use common every day examples which are easy to understand to make my points. If you want to label that as something else, then what can I do?

Nothing new here that you or I or others haven’t gone over before, here or on the other blog where the best credit card comparison resides.

I am not overly concerned with security. As mentioned before if I’m on vacation will I keep $3000 in my pocket driving from Ontario to key west Fla and pay everything with cash? Will my spouse go shopping in Atlanta downtown? No. It’s convenient for most everyone to use a credit card. And yes it is is safer. The positives far outweigh the negatives. For every service in life their is a cost. I think most people will agree, a cost with a value to the user.

As for your stats… Every second every day some type of lottery ticket is purchased at a 7/11, a gas bar, a variety store, in an office pool, etc. with cash. There is absolutely no way to track the demographic makeup of those cash purchases. I have to question those stats. I think you missed the point of why I asked you that completely anyway.

There is a cost to everything in life and a price is set for everything. Who decides what is fair for any goods or services? Is it fair an advisor charges a client a front load fee, a DSC fee, and a 2.5 % fund fee? Particularly for a fund that can’t outperform an index year after year? If I go to a strip club and they charge $7.50 for a beer is that fair. You are paying for the service with the exhorbitant price. Are credit card fees and the effect of debt on one segment of society fair? Maybe not. Maybe you feel these are straw man arguments. I disagree. We all have choices in life. No one is forcing anyone to utilize the services in any of my examples. All three come with a cost. If one finds value in anything that I disagree with so be it. In real life that’s just the way it is. (Ideology vs reality) You see no value in credit cards and in your opinion it’s a scourge on many. Most others do not.

I will continue to use my card.
I will utilize the perceived benefits that I value from them. The car rental waiver, the doubling of warranty periods on purchases, the cash back. Purchase protection. Numerous rewards – way too many to list. The fast replacement of it being lost. The fact I can sit on a beach all day without worry about $500 or more sitting tucked away in my car or hotel room.

Do I feel bad for poor people and the perceived effect credit cards you claim they have? Not really. Where everyone is in their life today is not solely the fault of a credit card. Most times its based on poor choices long before they got the card. The card just amplifies their situation. I believe people need to change the way they approach their finances as a whole. Poor use of a credit card and debt is just one facet of many accumulated poor choices.

I have to say I grow tired of this round and round discussion. I appreciate your time and view. Sorry I disagree and will never change my view. We live in a debt based society from the top down. You have a huge challenge if you want to change that. If the worlds governments can’t manage debt wisely, how do you expect their citizens too?

I’ll let you get the last words in if you so desire. I’m out. Good luck.

Hmmm, not sure why, but a line was cut. Here’s the edit:

According to 2014 StatsCan numbers, here’s who gambles (all forms):

Household income:
$80,000, 75%.

(Mark, you can paste that in to the original post and delete this one if you want to save room.)

@Paul N
“Hey SST
Who are you referring to as the “financially illiterate public”? Is that everyone that posted a positive view on cards that does not own a financial blog?”
~That might be your definition, mine differs slightly. Considering the national financial literacy rate sits at 60% and the same degree of credit card users balance monthly, I might consider the remaining 40% as the “financially illiterate public” (but probably much higher).

“Secondly on the top 100 frustrating topics to write about in Canadian finance centric issues I would rank cards at around #97.”
~Is that a personal list or is there a national poll published somewhere? What are the other 99 points?

“You and I disagreed about inflation before. I think that’s a much bigger issue.”
~And credit cards are a very direct contributor to inflation.

“If it wasn’t, why the flak over $15/min wages. Shouldn’t that $10 or $12 per hour still suffice if everything still cost the same as it did 5 years ago?”
~We ought to know by now that the CPI is a useless metric and more of a public image tool. No one is arguing that inflation does not exist.

“Why do 80% of government employees get a defined benefit pension? Funny I don’t have that but my taxes sure pay for that. 60% of Canadians have no company pension at all. I don’t think that’s fair.”
~Apologies for the exceptionally delayed response, I was trying to find the Universal Law which states life is fair; I gave up. Life isn’t fair, a fact which renders my credit card crusade just as invalid as your anti-government/tax stance. But yet I continue.
If you don’t like the current state of pension distribution (there is no law forcing private enterprise to provide pensions to their employees), then start your own business and give your employees government-like pensions and wages.
If you don’t like the current state of your tax situation, then seek out every and all ways in which to lower your taxes. Have you exhausted EVERY opportunity?
Do you know actually know how much of your tax bill pays for government wages and benefits? The healthcare portion far outstrips wages & benefits, and we spend a lot of healthcare money on the poor. As I stated previously, want to pay less tax (aka less healthcare expenditure…and cause less inflation!), use less credit card.

“Particularly when I’m standing in line or just been transferred for the 8th time calling into a government agency the speaks condescendingly to me and works in slow motion.”
~Agreed. Public service has flaws, but what you describe is an operational issue, not an economic/financial issue, thus irrelevant.

“A billion dollars got wasted on a gas plant cancellation in Ontario. I’m pretty pissed about that too. I’m not happy at how much tax I pay now, the paltry tax break given to the middle class, will plans to create other taxes slowly roll out that will take 10 X the break given. Let’s start with the doubling of the land transfer tax. Much more relevant topic.”
~All your complaints are about the government and taxation. You (and everyone else) have a mechanism at your disposal to remedy these complaints, it’s called voting.
Do you vote at all levels each election? Do you communicate with your elected representatives (even if you didn’t vote for them)? Do you communicate with the persons you did vote for? Do you protest, in any form (beyond griping)? Do you write and promote an informative political blog to educate the public of these concerns?
Thinking that the system and its players will change organically or wilfully for the better is a pipe dream. Remember, life is not fair.

You seem to overlook the FACT that a credit card is a CONSUMER PRODUCT created by a corporation. It is NOT an inherent part of economics. We can’t choose to NOT have a government, but we can choose the form of our payments.
Perhaps a better way is to illustrate using a different sector, food. You can eat every single meal at McDonalds and you’ll spend less time and money on the process of eating than the person who makes all their meals from scratch. McDonald’s is a long-standing cultural and corporate consumer product. Eventually you will incur higher future costs (e.g. healthcare) because of your choice to use that product in order to give yourself more immediate benefits (e.g. money and time) over the homemade meal maker.

“I could easily pick quite a few more topics. Your credit card topic… Yes I see your point. It hurts some. But many things in life do. It will never get any traction.”
~Uh, no. It hurts all. Just that the people who do the most damage (high-income earners) receive the least amount of hurt, thus there is no impetuous for them to change their behaviour. They can’t see past their free car wash enough to even imagine lower their healthcare taxes.

“I read a quote somewhere around the midpoint of the recession. It was a Wall Street type explaining that the markets weren’t there to help people insomuch as to find ways to take money from the weaker players and filter it back to the top.”
~And you thought otherwise? If you did, then that’s your fault for being disappointed. Of course it’s not there to help people, “Wall Street” isn’t a charity, and there will always be a much higher level of corruption in environments that have a greater access to capital. Credit card users do the exact same thing — take money from the weaker players and filter it back to the top. Where’s your outrage? Again, life isn’t fair.

“There are so many ways people get taken adavantage of these days this just does not register on any radar.”
~And that’s part of the problem. It’s perhaps the easiest advantage-taker to eliminate. With almost zero effort you could cross off #97 and move on to curing the other financial ills on your list. But you won’t. The reason?

(Apologies for the delayed response, I’m busy! Paul, I’ll try to post to you on the weekend.)

re: “do you ever find it interesting the people without money (i.e., maxing out their CCs and only pay back minimums) are the same people subsidizing the folks that can afford to pay cash – people with money?”

Your comment reinforces the fact of how most people view credit cards, with a focus on personal price and rewards. It’s not about revolvers subsidising transactors (narrow), but users inflicting non-users (broad) and the over-all economic effect.
(And most transactors are merely revolvers in disguise. Think of a revolver as an exponential curve and a transactor as a sawtooth wave.)

It’s like focusing on gross market returns without ever accounting for taxes, fees, or inflation to calculate real returns. Rare is the consumer who takes an expansive and long-range view of their personal small scale financial decisions.

It gets a bit tricky because both usage and debt load are not equally distributed throughout income quartiles.

Basically, higher income individuals and households have higher usage, limits, and balances than the lowest income quartiles.

In other words, it’s not the lowest quartile of revolvers who are subsidising all transactors; it is the higher income quartiles, those who can afford NOT to use credit cards, who chose NOT to use cash/debit, who are doing the bulk of the subsidising — and the bulk of the damage.

Perhaps only half of the lowest quartile utilise credit cards, and that debt composes about half of their total debt load. We can probably safely assume they are using credit cards for necessary living expenses and not to chase “free” cash back.

Because credit cards issue non-specific consumer debt (e.g. mortgage debt can only be used to buy real estate) as well as being consumer products (i.e. you pay to use it), they cause two layers of non-discriminatory price inflation across the entire economy.

Thus, the credit card users in the lowest income quartile having to utilise even more credit to make ends meet, thus using even more of their income for minimum payments, thus making them even more poor. The lowest quartile cash-only members also must bear the higher costs, at the cost of becoming more poor, and whom are most likely already living at a lower standard than those in the same group who do use credit cards.

You might think, big deal, that’s just capitalist economics at work. Thing is, by using credit cards for personal gain you are reinforcing and widening the wealth inequality gap. Your payment CHOICE of credit card is making the poor even more so.

There are ~3 million “poor” people in Canada, and being poor is expensive for the rich but mostly for the poor.

Just from a health care point of view, if the poor had the same basic level of health as the wealthiest, we could eliminate perhaps tens of billions of dollars in public healthcare costs per year (as well as many millions in wasted production).

Want to pay less tax?
Use less credit card.

Beyond that, there are a couple other serious problems with credit cards.

So to those who think they are getting “free” cash back or subsidised benefits…widen your focus. As an intelligent millionaire recently said, “…this is a reminder that free never exists and the price is usually something you think is no big deal but in fact is a very big deal indeed.”

I’ve done all the items “not to do” that have come up in my personal life. Used my card for a car down payment. I knew I had a bonus coming from work but wouldn’t receive it for a week or two, so I charged it.
ALWAYS charge vacations to your card. Assuming your card has the travel insurance suite (as mine does) – charge the vacation, get flight/baggage delay/lost insurance, travel medical insurance, car rental insurance, etc. All from just charging it to the card.
I also always use (and recommend) using your card for any big-ticket purchase like appliances and iPads and furniture. First, price protection if the product goes on a better deal in the near future and second (most important), double the warrantee. Bonus, if you have purchase assurance, someone steals your iPad, they will replace it for free.

Plus that sweet, sweet cashback on the purchases! 😉

Of course, all these are only good if you’re card has the mentioned insurances (probably all annual fee cards, or would have to have several different free cards to get all mentioned above), and you pay the bill to avoid interest, and charging it to plastic doesn’t make you spend more.

But honestly, all the included insurances on my cards has saved my butt too many times to count.

Some people get caught up in the ” I must earn points” and charge more than they should. I have also found most small businesses pay 2% to a credit card company so if you have a purchase of say $2000 ask to pay by debit or cash and request the discount 7 of 10 times I have got it .

Like all tools (say a chainsaw) credit cards can be a useful tool, and while credit cards cannot cut your leg off, it still can do a hell of a lot of damage (much like a chainsaw).