Beware of induced spending (or the perils of credit card travel benefits)

Photo courtesy of NapInterrupted

 

I read lots of travel hacking blogs, as I’ve mentioned many times. And because sometimes travel hacking blogs seem more like credit card sales pages, I ingest many marketing messages on a regular basis.

So when I was writing my post about applying for NEXUS to get Global Entry, I could hear a voice that wasn’t my own going “No! You can get Global Entry for free! It is reimbursed when you have an Amex Platinum card!

And while this is true in a technical sense, it isn’t true in a practical sense.

To understand what I mean, we need to talk about induced spending.

Spend more in order to spend more

Induced spending is spending that is encouraged by circumstances. The most easy example to understand is Amazon’s “free shipping over $25 $35″ rule. You buy an item and it costs $20, with $5 shipping.

But! You see that if you bought one more thing, you’ll reach the $35 threshold, and you’ll get free shipping. So you look around to find something else to buy. You put another $15 item in the cart, and get free shipping. But you’ve also been induced to spend $10 extra dollars, and Amazon laughs all the way to its drone-powered bank.

Amazon wins here, not you. You got another item, which you may have wanted, but if you wanted to purchase it then, why didn’t you originally? You needed to be induced to spend that extra money.

And the Amex Platinum card is a notorious example of induced spending.

The elements of Platinum

The American Express Platinum Card is a charge card geared toward big spenders, or those who are interested in “high-end” experiences. It is known as a “prestigious” card, which is pretty amazing when you think about how it’s just something that allows you to borrow money.

More importantly for us, this is also a card that is geared toward frequent travelers. Its perks are wide-ranging and extensive. Here are just a few:

  • $200 yearly incidental airline credit
  • Lounge access through the Priority Pass program
  • $100 Global Entry application fee credit (hey!)
  • No foreign transaction fees
  • Starwood Preferred Gold hotel status
  • Baggage insurance
  • $450 annual fee

So you can see, it offers quite a lot for the…wait, what was that last one?

  • $450 annual fee

Gulp.

Brother, can I spare $450?

A cost of $450 a year turns into about $1.23 a day or $8.65 a week.

But don’t all those other benefits offset the fee? Do a quick search online and you’ll find a galaxy of people weighing in to show that it can be worth it. (Though you may want to beware, as some of those sites are not impartial.)

But I don’t buy it. And to show you why you may not want to either, let’s go through a few of the most “lucrative” benefits one-by-one:

$200 yearly incidental airline credit. Baggage fees, on-board meals, and other miscellaneous charges can all be reimbursed. There are even reports that you can buy airline gift cards with this, which you can use toward flights.

The problem is that you’ve technically already spent this $200 and now you need to find things to spend it on. For example, you buy gift cards for an airline, and then later you might have to buy a more expensive flight because it was on that airline. Maybe you don’t need to check that many bags. Doesn’t matter, you’ve already paid.

Lounge access through the Priority Pass program. This benefit gets you access to hundreds of lounges around the world, and is valued at about $400.

The problem is that it forces you into continually “buying” lounge access even when you might not use it. If you were to buy lounge access outright and then had a spell where you weren’t flying for a while, you could let your membership expire for a few months or a year, and save all that money. You can’t do this with the Amex Platinum. They already have your money.

$100 Global Entry application fee credit. This is where I started this whole conversation.

How long will it take the refund to go through? Remember, that you are spending a little under $10 per week that you have this card. Because of this, the benefit of the “free” benefit decreases over time. If you don’t use airport lounges, and you haven’t used the airline credit for whatever reason, after about two months of having the card, you’ve already paid for your Global Entry membership; you’ve just given it to Amex instead.

Reports online say that the refund can go through quickly, so perhaps this isn’t a big issue, but you don’t know. And it leads to my final point, which is that there is a tendency to keep the card when you already have it. You may get the “full value” in the first year, but what about years two and three? Will you cancel then? Or might you want to keep some of those perks now that you have them? Will you rationalize keeping it? Will inertia win out?

Utilizing the benefits of this card reverses the typical method by which we purchase things. Normally, you have a desire to purchase something, then you figure out how to afford it, and then you purchase it. With this card, you purchase something, and then figure out how you are going to get the value from it.

Be sneaky at your own risk

Now, I hear tell it is totally possible to apply for the card in December, get one year’s $200 credit, the next year’s $200 credit, and Global Entry, and then cancel the card. And if that’s your speed, then by all means. I’m not saying it’s impossible to get more value than you put in, but I am saying that it’s not guaranteed. In any credit scheme, there is risk involved. This scheme is not worth it to me.

Spend less in order to spend less

So expert travel hackers can scoff at how I willingly paid money for Global Entry. I’m fine with that.

But I will warn you to be aware of situations that cause induced spending. Otherwise, you’ll likely be spending more money than you planned, and then attempt to justify it after the fact. Don’t let them win.

But enough about me. Have you ever gotten caught with paying a fee that you later had to justify?

Mike Pumphrey

Mike Pumphrey

I'm the founder and author of Unlikely Radical, a site to help people succeed with money, achieve their goals, and live intentionally.

I offer a free phone consultation to anyone who is interested in changing their financial narrative. Are you ready? Click here for details.
Mike Pumphrey
Posted on January 23, 2014