Tuesday, July 27, 2010

Credit Cards - Evil?

As a follow up from Paper or Plastic?, I'm sorry to say that I've caved in to the double-Cs. Yes, I got one, as a contingency measure for my month-long trip (but I didn't use it abroad at all!). Having this plastic in my wallet is quite tempting, but as a compensation, I think I'm more alert at checking myself on whether I really need to buy something (whenever the urge arises). Anyway, so far it's been working out good - as next month the bank will be giving me around RM28 cashback (I'm not too sure for what exactly - perhaps since I'm a new user and I've been using my card weekly for petrol and misc. and the fact that I pay up before they bill me?). :)

This is a cute way of putting things into perspective!

Anyway, the purpose of this post (and me revealing that I have succumbed to the banks) is this Reuters article. The Federal Reserve Bank of Boston released a study on how credit card fees and rewards programs are acting as a transfer of wealth from the poor to the rich. You may ask, how can this be when I don't actually ask the poor to pay my credit card bills? Well, if you've noticed, most merchants usually do not charge extra if you opt to pay via credit card. Of course, (in Malaysia) with the exception of smaller shops, some Chinese restaurants and certain cellphone dealers - where they will charge you a higher price (about 2% more) if you want to pay by card or they set a minimum limit of RM50 for credit card purchases. For the majority of the merchants out there, they are willing to absorb that small percentage of credit card fees in order to secure more sales. So at the end of the day, customers paying by cash are actually paying more to the merchant for their goods, while credit card users are paying less and the rest of the dough goes to the bank. And when the merchant 'absorbs' the credit card fees, it means that they're taking that extra money earned from their cash-paying customers to pay the bank. According to the said article, people who pay by cash are also more likely to belong to the lower income group. Therefore, in essence, credit card users are robbing cash-paying customers (through the very subtle middlemen - the merchant and the bank).

So, this doesn't really encourage consumers to pay cash for their merchandise, as you end up paying more than what the actual price should be (i.e. minus credit card fees) and you're poorer immediately (as opposed to buying on credit and paying up at the end of the month). On top of that, if you rack up more on your credit card bill (and maintain a good credit history), you'll get more points for gift redemption or cashback (like my credit card plan!).

The banking system and all these credit card schemes aren't perfect - somehow, somewhere, sometime, someone has to become the scapegoat at the end of the day. I don't think there's a win-win situation or solution to this matter. After all, it is business and people do what they do to get more money. In other words, it's a dog-eat-dog world. So for those who have credit cards, use them! You're actually getting more for your money spent! (Disclaimer: The author is not liable for any overspending done via credit cards on the part of all readers of this post. You should have enough brain to know your spending limits when you sign up for a credit card!)

No comments:

Post a Comment