Do rewards credit cards have any long term impact on wealth?

[sethmachine]

There are numerous rewards credit cards that can offer users "cash back" in ranges of 1% to up to 6% on most things we buy everyday.

Using a debit card or paying cash therefore, would seem to be an unnecessarily more expensive option.

I have a 6% cash back grocery card, which can redeem the cash back for statement credit. In that sense, I get 6% off my grocery bill every year. All the previous years I was either get 0% or maybe 1%- 3%.

I also use a 2% cash back card on general purchases, usually for restaurants. All the years before, I'd be getting 0% - 1% back. In that sense, going out is 2% cheaper for me.

One must be careful to avoid the temptation to spend more with these cards, since they can provide a good cash back, of course.

While this is all great, will all these rewards actually add up in the long run to translate into meaningful wealth and savings? Does anyone have any studies or calculations that demonstrate this one way or the other?

For simplicity, suppose the cards are always paid in full each month. And that rewards can only be redeemed for statement credit (some exceptional rewards cards do allow you to send yourself a check or direct deposit for the amount).

[disneysteve]

will all these rewards actually add up in the long run to translate into meaningful wealth and savings?

I think "wealth" would be a stretch. Meaningful savings perhaps.

Let's say you spend $1,000/month on groceries. You would save $60/month or $720/year. Do that for 20 years and you've saved $14,400. I'd say that's a meaningful number. Will it enable you to retire early or travel the world? Nope. But why throw that money away by paying cash or using a debit card?

[GoodSteward]

You actually don't want to think of it as building wealth. It will make you more inclined to spend on things you don't really need because you think you are actually doing something good for your finances. Cash back should just be thoguht of as a way to help us save with what we are buying regardless, not as an incentive to "earn money/make money" like the cc companies wnat you to think. It's all a mind game. Don't get sucked in by their jedi mind tricks.

[GoodSteward]

Personally I like it cause it kinda makes me feel like I'm getting back at them for all the interest I paid to them years ago when I was deep in credit card debt.

It's like hah....I'm taking your money now. :P lol

[kork13]

Agreed with DS. It's not a game changer by any means, but it's certainly a noteworthy benefit. We spend around $2k/mo on credit cards, charging everything that we reasonably can. Between a few different credit cards, we average roughly 3.5% ($70/mo) earned in cash back rewards.

$70/mo isn't going to make me a millionaire, but (as an example) it can help keep me from going into debt -- I add $50-$100/mo to our emergency fund every month. By avoiding debt in an emergency (like dealing with our furnace that went out this week at the beginning of Alaska's winter), I have the ability to continue building wealth in spite of surprises.

What I will say is that in most cases, becoming wealthy isn't about big, momentous events. It's a long series of small, smart choices that build up your financial future, brick by brick. Little things like credit card rewards do matter, when used wisely and combined with other small, smart moves over a lifetime. Rome wasn't built in a day.

[97guns]

save, yes but impossible to build any wealth through cc rewards because your outflow(spending) will always be greater than your inflow(rewards)

[disneysteve]

impossible to build wealth through cc rewards because your outflow(spending) will always be greater than your inflow(rewards)

I think the point was if you save the money via credit card rewards, you free up cash that can be used for other purposes, like investing.

[scfr]

It is a way in which small amounts of wealth are transferred, a bit of "the rich get richer and the poor get poorer." Those who carry balances and pay interest are in effect paying those of us who pay off our balances every month and receive the cash back rewards.

[disneysteve]

It is a way in which small amounts of wealth are transferred, a bit of "the rich get richer and the poor get poorer." Those who carry balances and pay interest are in effect paying those of us who pay off our balances every month and receive the cash back rewards.

Very true. If 100% of users suddenly paid off their balances and started paying their bills in full every month, the reward programs would vanish. It is only by collecting 29% interest that the companies are able to pay us our 1 or 2% rewards.

[MakeAStash]

Long term there's no benefit for cardholders because merchants, who are forced by the card companies to pay for the reward, simply raise prices to compensate. So, yes, you might earn $1000 over time but that's because you paid $1000 more for the goods than you would have otherwise.

[kork13]

Long term there's no benefit for cardholders because merchants, who are forced by the card companies to pay for the reward, simply raise prices to compensate. So, yes, you might earn $1000 over time but that's because you paid $1000 more for the goods than you would have otherwise.

Agreed, but as merchants do not charge a person less if paying in cash, you lose out doubly so without earning the rewards to negate the impact of that compensation. In the end, such an argument is futile -- the price is the price, for whatever the reasons might be. You can only control how the transaction plays out from your end.

[disneysteve]

Long term there's no benefit for cardholders because merchants, who are forced by the card companies to pay for the reward, simply raise prices to compensate. So, yes, you might earn $1000 over time but that's because you paid $1000 more for the goods than you would have otherwise.

the price is the price, for whatever the reasons might be. You can only control how the transaction plays out from your end.

I agree with kork. The price is the same whether you pay with cash, check, debit, or credit. The difference is that if you pay with a rewards credit card, you get a little discount that the other customers aren't getting.

[MakeAStash]

There do exist various cash-only stores, and I shop at them for the discount. The more the rewards increase the more stores will go cash-only.

[disneysteve]

There do exist various cash-only stores, and I shop at them for the discount. The more the rewards increase the more stores will go cash-only.

What sorts of stores? Are any of them mainstream retailers or is it mostly mom and pop kinds of places?

Thanks to things like Square, even businesses that were traditionally cash-only, like flea markets and thrift shops, now accept credit cards readily.

[StormRichards]

There do exist various cash-only stores, and I shop at them for the discount. The more the rewards increase the more stores will go cash-only.

Other than a couple of pizza shops, I don't know of any places in my area that are cash only. Cash only is never going to become the norm.