What’s in your Wallet?

The credit card ads on TV amaze me. Credit card companies are giving card holders 2 to 4 percent back on their purchases. The new concept of money is that, you get nothing for saving it in the bank, buy yet you get money back for spending it.

Ever wonder where that 2 to 4 percent rebate came from? It has to come from the retailer. Kind of takes me back 30 years ago when you asked the store for a cash discount and if they said, no, you gave them your credit card. And you could stick it to them in varying degrees. Master Card charged the retailers more than Visa did.

If you can repay the credit card charges at the end of the month, you get a little cash back. Realistically if you made 120k a year, that’s about 10K a month to spend—$200 to $400 dollars in cash back if you put everything on a credit card.

The question you need to ask is, “Where does the credit card company make its money?” And it certainly not by giving you cash back for each purchase. If you screw up, you get to pay 16% interest on your balance. Not a bad deal for the bank.

So in today’s world, the phrase “What’s in your wallet?” has a good ring to it. I have trouble with the concept of spending money to get money back. It smacks of a snake oil salesman.

Of course, todays grads get the student loan and then the 250K home at 4% and everything else at cost, plus 16%. Sounds a little like the company store routine. We know what’s in your wallet, absolutely nothing, for the rest of your life.

You wanted it now, and decided to pay for it over time. The trouble is, forever is a little longer than you had in mind. Compound interest is still the 8th wonder of the world.