18-04-2014, 02:53 PM
The bitter sweet truth about credit card reward schemes
bitter sweet.pdf (Size: 250.42 KB / Downloads: 15)
Perhaps the biggest allure of credit cards is the ability to
spend without having to carry cash. But for some people,
part of the appeal is the belief that frequent card use can
bring a host of incredible rewards.
In rewards schemes, the cardholder earns a fraction of
the amount spent in the form of cash, vouchers and gifts.
Free tickets to a dream destination, weekend stays at a
luxury resort, dining and retail discounts are just a few of
the freebies up for grabs.
Because the offers often look too tempting to resist,
cardholders are increasingly pursuing air miles and
points to supplement their expenses. Consequently, as
consumers swipe more, spending and debt levels also
rise.
A Federal Reserve Bank of Chicago paper published in
December 2010 tackled the impact of credit card
rewards on spending and debt in the United States.
Authors Sumit Agarwal, Sujit Chakravorti and Anna Lunn
examined whether consumers spend more when given
rewards and if they incur more debt because they
receive incentives. Specifically, they reviewed thousands
of accounts of individuals enrolled in a one per cent
cash-back programme.