Wealth Transfer!

Monday, November 7, 2011

A few days ago a loyal reader of my blog brought up an interesting point, what about credit card users who pay their balance on-time each month.  If you have a card that gives cash rewards, airline miles or any other form of incentive you actually benefit from the use of the card if you pay on time and in full each month.

In my original post I was talking about the use of credit cards in general and how they increase the price of the goods that we purchase.  What I did not consider or mention in that post was the price of goods goes up for everyone including the cash buyers.  But because the cash buyers do not benefit from the credit card incentives there is an implicit transfer of money from the cash users to the credit card users.  The subject is covered nicely in this white paper from the Federal Reserve Bank of Boston.

Good Eye Amy and keep those cards and letters coming.  More on actual fees in a future post.

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