Exploring leveraging credit card float for financial gain and the influence of credit card rewards on spending behavior. Financial institutions have incentives to encourage spending, and using credit cards may lead to impulse spending. Jesse shares his experience with ditching credit cards and how it has made him less likely to impulse spend.
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Quick takeaways
Strategically maintaining extra funds in checking accounts to leverage credit cards for extended payment timelines is a form of 'gaming the system' in cash flow management.
Credit card companies employ rewards programs to incentivize higher spending, subtly encouraging customers to spend more for increased profits.
Deep dives
Credit Card Float Game
Some individuals strategically keep extra funds in their checking accounts to utilize credit cards, allowing them to extend their payment timelines, essentially leveraging the bank's money for an additional 30 to 45 days before settling the balance. By maintaining a surplus in their checking accounts, they engage in a form of 'gaming the system,' which grants them an advantage in managing their cash flow.
Credit Card Rewards Programs
Credit card companies implement rewards programs to incentivize increased spending among cardholders, ultimately driving their profits. These schemes, offering rewards such as cash back, Amazon points, or gift cards, aim to encourage more significant expenditures. The psychological influence of these programs, subtly enticing customers to spend more in pursuit of rewards, demonstrates a clever strategy employed by credit card companies to boost their revenue.
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Exploring the Strategy of Leveraging Credit Card Float for Financial Gain
Jesse answers a question from a listener who argues that becuase he carries enough cash to cover his credit card spending at all times, he is not riding the float and therefore is gaming the credit card companies. Jesse quotes Charlie Munger -- "show me the incentive, and I'll show you the outcome" (he actually said outcome not behavior) -- and observes that financial institutions have big incentives to encourage more spending, because spending increases their fees. So where there's an incentive, there's a behavior they want to encourage, and using credit cards is it. In Jesse's experience, ditching the credit card has made him less likely to impulse spend, and that experience is likely what financial institutions have figured out!