There’s a story out this week (here) postulating that the poor are funding credit card fees while the rich reap the rewards. This alleged injustice is two-fold: 1) the poor tend to pay cash for items more-so than the rich and since transaction fees are passed on to all consumers, it’s the poor that are disproportionately affected with bankruptcy and lifetime debt slavery, and 2) the poor don’t tend to get the benefit of the rewards programs the rich do.
First off, let me start with the basic mantra – correlation is not causation. Just because two items are correlated, that does not necessarily mean that one causes the other. Just like I might say all basketballs are orange, that doesn’t necessarily mean that all orange balls are basketballs. So, because poor people tend to pay more into the credit card system and wealthy people tend to take more out of the system in the form of rewards, etc., that does not necessarily mean that this is some sort of unfair redistribution of wealth that is “forced” upon the poor. For instance, I know plenty of wealthy people who overspend and pay fees and interest on their credit cards and there are also people of modest incomes who use a credit card but never make a late payment for fear of the economic damage they can wreak – and there’s nothing preventing them from having a cash back card comparison tool just like I do. So, just because you’re poor, that doesn’t mean you are forced to be paying exorbitantly into the system. There are many reasons why people are poor, and often times it’s more related to the cards they were dealt than anything else, but sure, some people are poor BECAUSE of their spending habits! So, the cause was personal behavior, not economic status.
Now, that’s oversimplifying, but making some points. To point out how misleading this suggestion is though, consider other circumstances where the poor are disproportionately affected and then ask yourself if the argument makes sense:
The Poor and Gambling:
Since the poor spend almost ten percent of their income on lottery tickets (scary – source), and these ticket proceeds go into the state coffers, the poor are paying for services the wealthy enjoy in the form of state tax expenditures.
Would this argument make sense to you? Do you feel guilty every time you drive on a state highway or go to a state park? Should you? Do you feel like you owe the poor back for their generosity in disproportionately funding what you’re enjoying? Somehow I doubt it. Again, part of the reason many people are poor to begin with is their spending habits. Of course, much else is involved, including the fact that many didn’t get the same start in life that perhaps you and I did. But to argue that the poor are funding the rich via lottery tickets would mean what – we should subsidize their lottery ticket purchases?
The Poor and Cigarettes:
It’s been well-known for years that the poor are disproportionately affected by tax hikes on cigarettes (source) but because smokers are politically unpopular (both rich and poor), these tax hikes usually make for an easy money grab by politicians to blow on unrelated services and giveaways. While the data would support that people who don’t stop smoking are impacted financially by such hikes, would one make the leap that the poor are helping the rich by smoking?
The thing to keep in mind in the arguments is, what is the aggregate story here? 47% of Americans don’t pay any federal income tax whatsoever and the poor generally don’t pay any state income tax and receive benefits the rich don’t. Even in the context of some of these alleged backward flowing benefits, is it worth upending a private sector financial flow to advance some sort of social justice that is really more based in behavior than it is economic status?
The most laughable part of the study is the recommendation: Reduce card rewards and merchant fees…perhaps government should regulate how rewards are administered. Because after all, that, like virtually everything else the current administration has done – would reward the irresponsible while punishing the responsible. Anyway, I’m a huge fan of cash-back credit cards here in the US. And This site in the UK lists credit cards available including reward and cashback credit cards there.