I just heard a comment from a well known business analyst on a tv show : “lots of people go crazy collecting points, i don’t. I do not see the need or value in it”
Humm.. What is the definition of a currency?
Is bitcoin a currency? Yet many compared the similarity of points to currency: it allow you to buy things, services, and trade for even cold hard cash.
And if you use a flexible points like hotels points, or transferable credit card points, you can “buy”, trade goods and services all over the world: you can get hotels rooms anywhere, transfer and redeem for mechandise reward at almost any country.. Etc
That tv business analyst seems to forget that the “market” for points is huge! Billions and billions.
He is right that because of the variable nature of the redeemed value of each points, it is hard to put an exact value on it. Most people will not be able to get good value from the reward points.
But he forgot that The exact lack of transparency of the points value system can actually favor few savvy “collectors” and “redeemers”. The tax free nature, and “international” transferable nature of the points can be sometimes worth more than his cold hard cash.
It is ironic that he would spend lots of energy and effort to chase a slight higher return of 1-2 percent on his stocks, all while he could have easily get MINIMUM guarantee return of 2 percent (and up to 20%) value back TAX free for just carefully and easily funnel credit card spending
Supposed he have a 1 millions porfolio, 2 percent return : $20000, then minus the TAX on it : (supposed fixed interest income, at max maginal income tax) : $10000. (How hard it is to get net 2 % return after expenses!!)
supposed he go out and buy or trade things with that cash (example hotel rooms) : he does have to pay 5-15% sale or hotel tax !
If the hotels cost $500 per night, he would have 20 nights if he paid cash ,(with the $10000 return) plus he have to pay sales and hotel tax.
What if he has a business where he spends $1 millions, charged on credit cards = min $20000, 2% min value as cash equivalent back tax free. ( but Usually 5-15%).
If he spent 1 millions dollars, he woud have get min 1 millions spg points. And if he used those points to book hotels rooms, NO tax, no sales tax (usually no hotels tax too) = min 50 nights free at top hotel (IF cost 20000 spg points per night).
Then Why are the points not as valued as hard currency, for example as “retirement” or “investments” currency? It is because points issuers can easily change the equation anytime and devalue the value of the points, by asking more points for the same goods, room, flight, or service.