Now just hear me out on this one...it's a bit complicated, but I think by the end it will all come together.
Travel Summary and Points Summary (Though Points Summary had it first!) both tweeted out a really interesting article from the Los Angeles Times last week titled, "What's in millennials' wallets? Fewer Credit Cards." JD previously wrote about the dangers of credit card debt and it's something that we both struggled with in the past.
But the interesting thing I found from the article from the LA Times is it appears that millennials are much more educated about the dangers of credit card debt than previous generations. The reporter interviewed many people who said they feared the fees from credit cards and that they shouldn't purchase things they don't have the money to pay for, thus they reason they shy away from credit cards. They recognize that the goal of the issuers is to get them to carry a balance and not know how much the interest charges will rack up to be.
In the points and miles game we know the main way to take the greatest advantage of the credit card bonuses offered by companies is to hit the minimum spend on the cards you get and no more, unless it is a good card for your everyday use, pay off the card in full to avoid paying interest charges and then lock the card up until the annual fee comes due. This puts in the smallest amount of spending needed to take the highest amount of benefit from the bonuses.
The key to this strategy is using your everyday spending to meet your minimum spend. I personally had to change my stance on credit cards when I came into this hobby. Previously I viewed credit cards as something that you could use to buy something expensive and pay off over time. That earned me some plane tickets home to Seattle during college, but it also took me lots of time to pay that off and I don't even want to know what I paid in interest. When I finally stopped spending on my credit cards and started to pay them down it was so painful. But after that last payment, when I was debt free it felts great. My attitude toward credit cards was that of most millennials' quoted in the piece, they were designed to put me back into debt. But when I started learning about points and miles and the strategy behind the "game" I realized that I could take advantage of the bonuses offered and keep my spending levels that same if I flipped my thinking and viewed my credit card spending as something that is coming straight out of my bank account.
If you think of it like a debit card, instead of a credit card, and that money is coming directly out of your pocket, at least for me, it opens the door of containing your spending and taking full advantage of the points and miles hobby while not putting yourself further into debt.
I'm proud to say that in my time in the points and miles game my credit score has actually increased. When I graduated from college it was in the middle 600s and now it's in the middle 700s! I've taken my utilization of the credit lines I do have down to almost nothing. I take every step I can to think about what I am spending and then pay off that spending every month.
I say all of this to postulate that the LA Time article fails to recognize the next step in the process. Those millennials, who dream of travel all the time, are the perfect candidates for this travel game. They treat their credit and their spending with care and if taught the mentality behind putting everything on your credit card, but paying it off in full every month to avoid charges, could be great at this game.
But I have to be careful, I don't mean this as a blanket endorsement to say, "All millennials' should churn to their hearts desire" because we simply know that it's not for everyone and that there are people who simply can't flip their thinking to spend this way. But I think the millennials' who can, and already do view, their credit as something valuable to protect could find themselves suddenly traveling to the locations they always dreamed of, while keeping their spending the same.
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I'm one of those millennials and can attest to this. Got hooked on to miles and points last fall and this summer i'll be traveling to places I never would have imagined I'd be able to afford.
ReplyDeleteThat's awesome! Where are you heading this summer?
DeleteUntil quite recently, my 20something son did not want a lot of cards in his wallet. When I would suggest a better card, he did not want the bother of tracking purchases and paying one more bill. He is very reluctant to do anything with banking online, because he travels a lot in Latin America, using public terminals to check the internet, and he worries (rightfully so) about someone hacking into his online accounts by picking up PWs from the air - something that happens right here in the US of A too, at places like Starbuck's!
ReplyDeleteBut when he was hired for a 100% travel job in the US, he readily agreed to get a hotel card, which came with gold status (and thus free breakfast and internet). He autopays the bill, has me around to check his snail mail, and is racking up the points. I wouldn't be surprised if he is converted to this way of thinking. He has found that gold status really helps; he and the team he supervises are treated very well. When he needed to mail a package after the PO had closed, the hotel took care of it for him. When a washer left his clothes full of soap, a manager profusely apologized and gave him 30,000 points as a good will gesture. He is really starting to understand.
My daughter is also reluctant. Living on a pretty tight budget, she likes using a debit card that is attached to her checking account, so she knows all the time exactly what her financial situation is. She has her card linked to Mint and relies on that as well. But she may be coming around too, after she watched me book an award trip and realized how little it cost. Her problem is the minimum spends, but I assured her we could find some cards with low spends to start.
However, neither of my kids has the time it takes to track and monitor a bunch of cards from a big churn or to do much with manufactured spend. I can't imagine they will do that, at least not anytime soon. But a card to two, now and then - probably yes.
So they are for the most part in line with the millenials you describe, but not for the same reasons! And if they dip their toes into the pool, they will go slow.
I think dipping your toes is EXACTLY the best way to start. By no means should anyone just go full on and churn lots when they are starting out. Personally I don't churn every 91 days on the dot most of the time. When I do, I only get one or two cards. My budget is still limited and DC rent tied with student loan payments keeps my spending down. I stick to my limits and just get the nice benefits from it.
DeleteSo I can very much sympathize with your kids! Thanks for the comment.