(read this in light of our current credit crisis of 2008)
"...the rich rules over the poor, and the borrower is the slave of the lender."
Proverbs 22: 7To begin with, I know some folks who are those rare geniuses that you read about or see movies about. I know one guy who works for MSFT. Despite his opinion to the contrary, I have a very high opinion of his intellect. But that's not who this is about.
Instead, there's this guy with whom I'm acquainted... Has 2 engineering BS degrees from NC State & his Ph.D. from Wake Forest. At the age of 30 ish, his resume reads like a who's who article of Nobel Prize candidates. A true genius in the real sense of the word. He's that guy you love knowing and hate being around. He's the guy who's so darned talented that he just makes you sick! Plays guitar. Invents. Can discuss almost any academic subject with authority and true knowledge. He's a photographer, artist and author. He's an accomplished engineer, husband & spiritual leader. His self assurance can come across as cocky... but he's got some real reason to know his capabilities are true!
I won't mention his name... but he's real. And I'm convinced! He's the real deal! A genius in almost every area!
Except...
I was doodling online in blogs of folks I know and dug around a little bit until I found a little hidden blog from this gentleman. His first line piqued my attention when he discussed credit cards and their rewards programs. "Lame, lame, lame," he proclaims. I happen to agree, so I'm hooked. Apparently his credit card has a points reward program (like many others) that gives 1 point per dollar spent on the card. After looking into the rewards redemption program, he says that his best case to redeem cash was to get $64 per 10,000 points.
Pause for a moment. Notice the math. I know this guy can do intense linear algebra and complex calculus, physics & engineering problems. So, here's some simple math he could do!
1 point = $1 spent
10,000 points = $64 redemption
doing some simple relative mathematics... we can deduce that to even consider receiving the $64, one would have had to put $10,000 on a credit card... A little further in his post, he mentions getting a "fist full" of points redemptions... back to the math.
Let's assume for a moment that a "Fist full" is 5 redemptions... To receive 5 redemptions equal to $64, one would have to put $50,000 on a CC. Considering that CC's have been tightening their lending practices, that is considerable risk of rising interest rates on CC's which can reach the 30%+ area.
Now, let's make another assumption based on statistics: 70% of people do NOT pay off the balance of their CC's each month... With the multi-thousand dollar balances, let's just say that's safe to assume... but still an assumption. Now he's got a $10,000 balance at some point at the average of 22% interest APR... Approximately 1.8% interest per month. That's a $180 interest charge on the balance each month.
Well, he finishes his post saying that with some time invested, he was able to finagle out an additional $36 of reward for a total of $100 in Williams-Sonoma cards per 10,000 points. I'm going to assume he spent somewhere in the neighborhood of 5 hours finding this better deal... So he worked 5 hours for $36/hour on our assumed 5 cards... Not too shabby... That's $180/hour return on investment. After a little hocus pokus, he sold these gift cards for only $90 giving up $10 per card... thus $50 per hour... Still not bad... that's net $130 per hour.
But when you weigh it that they likely made $180 per month for several months on his purchases, I think we can be confident that he did not win this math competition. As Dave Ramsey says, "there's a reason their building is bigger than your house." And "No millionaire will tell you they got there by redeeming Visa points." His last line in the post was a taunting, "Take that credit card companies," to which they quietly respond... "Oh, don't worry... We did!"
No wonder I lack faith in engineers. They get lost in the gears and calculations and lose sight of the big picture.
