People like coupons. It feels good to get a deal, like you outsmarted somebody. There are plenty of cases where this is true and I will put some effort into finding a good price here and there. People that offer services know you like deals, and there are endless coupons, rewards programs, cashback policies, etc that get pushed in order to get your business and satisfy your need to save. Most people aren't math teachers though, and most people don't calculate how your average rewards program doesn't do you any favors.

I got this coupon in the mail today from a car dealership showing me all the incredible savings they're offering me on repair work:

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No confusing percentages, they did all the work for me! Look, I could save $100! I like $100. Where do I sign up? Here's the interesting part though. It's a flat discount on a $100 (or in one case $200) range. The more you spend, the less you save.

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Now to some people, free money is free money. It's really not since a car repair isn't something you like having to do. It's not like you saved some cash and got a tv out of the deal. You get to continue to show up for work. If the total rings up $299, what was the point of this coupon?

Second example, a rewards program. Southwest is a nice airline, they invest a lot of attention into the needs of their customers. They have a rewards program. You spend money you were going to anyway, you rack up points. Points turn into flights to Hawaii, etc. What's not to like? According to the terms of the program:

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When booking flights, Southwest gives the option of seeing fares in terms of points: 

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The Houston to Dallas run is a very common flight. There's one every hour all day long. The non-refundable fare goes for as low as $49 before taxes and fees. I can get that same flight for "free" if I have 2,940 points accumulated. If you go back to the terms, that means I had to spend $2,940 dollars to earn this free ticket. Three grand! Just to get to Dallas! If my points had all been accumulated by purchasing Southwest flights, it'd only take $1,470 worth of purchases to earn this trip.

If you fly a lot or have big gas bills or lots of kids to feed and thus big grocery bills, I get it. You could earn a couple of tickets in a couple months. Me? A "free" $49 ticket to Dallas would take about 5-6 months to earn, assuming I was still willing to travel and lay out for hotel, food, etc after going on the spending spree it would've taken to earn the flight in the first place.

Cashback programs operate the same way, but often have a cap on the amount you can earn in a certain period of time. Fun example: Spend $200/day for a month. Enjoy your $60 in cashback as you stare in disbelief at your $6,000 credit card bill. But hey, math is hard, I can't be bothered with things that are hard.

Posted
AuthorJonathan Claydon