WSJ Your Money Briefing - Inflation Is Chipping Away at the Value of Your Credit-Card Points

Episode Date: October 1, 2024

Americans have been accumulating mountains of credit-card points. Inflation is eroding their value. Wall Street Journal personal finance reporter Katherine Hamilton joins host J.R. Whalen to discuss what you should know to preserve the value of your points.  Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

Exchanges. The Goldman Sachs podcast featuring exchanges on the forces driving the markets and the economy. Exchanges between the leading minds at Goldman Sachs. New episodes every week. Listen now. Here's your money briefing for Tuesday, October 1st. I'm JR Whelan for The Wall Street Journal. First, I'm JR Whalen for the Wall Street Journal. One of the perks of using credit cards is the points you accumulate that can be put toward things like flights or a gift card. But those rewards you've been building up over the past several years don't go as far as they used to. Inflation is trending downwards, but prices are still elevated.

So when you redeem points within the portal of a card issuer, those points are worth about $0.01. But since 2019, a cent has lost considerable amount of value, about 20% of its value. We'll talk to Wall Street Journal personal finance reporter Katherine Hamilton about what you can do to preserve the value of your points after the break.

about what you can do to preserve the value of your points. After the break. How do stop losses work on Kraken? Let's say I have a birthday party on Wednesday night, but an important meeting Thursday morning. So sensible me pre-books a taxi for 10 p.m. with alerts. Voila! I won't be getting carried away and staying out till 2. That's Stop Loss Orders on Kraken, an easy way to plan ahead. Go to kraken.com and see what crypto can be. Non-investment advice. Crypto trading involves risk of loss. See kraken.com slash legal slash ca dash pru dash disclaimer for info on Kraken's undertaking to register in Canada. All those credit card points you've accumulated are losing value to inflation.

Wall Street Journal personal finance reporter Catherine Hamilton joins me. Catherine, in your story you write that cardholders built up a stockpile of $34 billion worth of points last year. That's a 70% increase from 2019. How are people accumulating so many points? There's a 70% increase from 2019. How are people accumulating so many points? There's a few factors at play here. First of all, during the pandemic, a lot of people earned a lot of points and weren't spending them as much because obviously people weren't

really traveling during that period. And now continuing onwards, we're seeing higher prices due to inflation. And so people are putting more on their credit cards and then accruing more points from that spending. Well speaking of inflation, how are people's points losing value? Isn't inflation trending downward? Inflation is trending downwards, but prices are still elevated. So when you redeem points within the portal of a card issuer, those points are usually based around one cent, so they're worth about one cent. But since 2019, a cent has lost a considerable amount of value,

about 20% of its value. So points are also losing their value at the same rate as a cent. What's the credit card portal? Where would you find that? Let's say if you have a Capital One card, you just go to the Capital One site and then you can redeem your cards for credit statement, gift cards, travel within that site.

But then alternatively, you can transfer your points out of that site to a frequent flyer program or another company and redeem your points there. So if people do transfer the points outside of the credit card site, where should they put those points to lessen the bite of inflation? The best thing to do is shop around as much as you can. So if you have lots of frequent flyer accounts, for example, you can look at five different airlines and how many points they're requiring you to pay for the same flight. And then you can find the best deal once you look at a few different options. Credit cards often offer consumers a large block of points if they sign up for a card.

Is that helping consumers get ahead of inflation? Consumers are earning more points than they were five years ago because credit cards are handing out points more liberally when you sign up for a new card or when you spend. But you're also seeing the price of things like flights and hotels increase and so it's balancing out on both sides how many points consumers need as well as how many they're earning. But we have seen some airlines change the formula by which travelers can redeem points. How has that affected the math for customers? A lot of airlines, especially in the US, have changed the way that they price flights for

points users. A good example is Delta in 2015. That airline switched its points fares from a flat fee price model to dynamic pricing, which is a pricing model that bases fares on timing and demand, and it's more similar to how airlines price their regular fares. So based on demand, based on the time of the year, the amount of points that somebody would have to use for a flight would go up or down? That's right. And it's also more susceptible to inflation.

We've also seen the government ask airlines to be more transparent with their point formulas. Why is this important to the government? Because it's possible that consumers aren't getting the best deals. And it's also possible that airlines aren't being really transparent about how they're setting prices.

So because a lot of airlines move to this dynamic pricing model, it's easier for them to change prices without notifying the customers. What the government is trying to do by launching a probe into how airlines value their points, they're essentially trying to get a sense of how airlines set prices to make sure that it's fair to customers. Consumers are often able to transfer points from one airline to another. Do points lose any value in that case? It really depends on where they're transferring to and from. So each airline essentially sets values by its own discretion.

So you can think about it like transferring currency from yen to dollar. It just depends on how those airlines value points. Does it matter how soon someone spends points after those points arrive in their account? Yes, especially if you're planning to redeem your points within your issuer's portal. It's really important to acknowledge that as the value of a dollar goes down, the value of your points is also going to go down. So as soon as you earn those points, they're losing value because the dollar is always losing value, even when inflation isn't super high. So the best thing you can do is what experts call earn and burn, where you're spending points pretty quickly as soon as you earn them.

That's WSJ reporter Catherine Hamilton. And that's it for your Money Briefing. We'll be back tomorrow with WSJ's Vanessa Fuhrman's to discuss how some companies are shifting full-time employees from salaries to pay that's based on performance. This episode was produced by Zoe Culkin with supervising producer Melanie Roy and deputy editor Chris Zinsley. I'm JR Whalen for the Wall Street Journal. Thanks for listening.