The Politics of Wealth Transfer Weekend Ramble
It seems that everyone is commenting on a post on Yahoo that mentioned one of the regional Fed Bank’s study on how interchange fees and credit cards were transferring “wealth” from the “poor” to the “rich”. Which really meant that those who have poor credit or those who carried a balance were subsidizing those who paid in full and earned “rewards”. What the study failed to mention is whether folks who pay in full spend more, or what is the percentage of cards out there with annual fee (you know – those airline credit cards and folks like me who folk out $450 a year to carry the Amex Platinum Card – which by the way is less than everyone’s cable bills). Here’s my take on this, wealth transfer always happens someone chooses to spend money (very often unnecessary spending). Folks who expensive jewelery (which you might argue have no value to society) transfer wealth to jewelers!. Smokers transfer wealth to tobacco companies. Our addiction to oil transfers wealth to oil exporting nations. Our craving to goods at the lowest price regardless of quality transfer wealth to countries like China. Those of you who an iphone even though you may not actually need one are transferring wealth to Steve Jobs and his shareholders. You can choose to carry a balance (and the market merely provides what is in “demand”) or you can choose to pay in full. It’s your choice. I am glad to find that despite this study, it is comforting to know that folks who pay in full will continue to use credit cards. Heck, you can even earn cash back with debit cards!
The key to avoiding “transferring wealth” unnecessarily is to realize that money does not make one happy and to stop lusting for things and getting yourself into debt. It might also help if you take conventional advice with a grain of salt. Like the advice that “mortgage is good debt”. You do not need to follow this advice. For example, you can always your house for cash. You can figure ways not to get into student debt. Obviously, that involves a little bit of a sacrifice, but trust me on this, having debt that is not supported by sufficient income and cash inflow is the surest way to transfer wealth to your creditors.
At the end of the day, we all transfer wealth in some form. We need to eat, to have a shelter, and we need to enjoy life. But we all have some unique skills that can add value to society. If we can create that value and provide something that is in demand, then wealth transfer happens in our direction. Just as one should spend less than one earns, one should transfer less wealth externally that the wealth that we can generate for ourselves.