Comments from reader msf on the previous post Keep Your Airline Miles Active Via Online Shopping Portals gave me the idea for this post. You keep your airline miles active because one day you want to redeem those miles for a flight. Putting aside the small fee you will still have to pay when you book a reward flight, is the reward flight free?
Some say of course it’s free because you don’t have to pay when you book the flight (again ignoring the small fee). It’s not so obvious that it must be free only because you don’t pay at the time. Besides financing, which makes you pay later, you can also pay ahead. Some stores offer layaway plans by which you pay multiple small amounts toward an item until the store finally releases it to you. When your miles are earned from paid flights, the reward flight is most like a layaway plan. With each paid flight you pay a small amount toward a future flight. When you paid enough those small amounts you finally get a future flight for “free.”
What if you got your miles from credit card signup bonuses, charging purchases on credit cards, or online shopping? It’s also not so obvious that it must be free only because you didn’t pay cash. As msf pointed out in the comments, in all those activities you are foregoing something else. You could’ve signed up for a credit card that gives a cash bonus or used a card or site that gives cash-back as opposed to miles or points. In choosing miles and points you give up cash-back. In essence you are buying the miles and points with cash-back you could’ve received. Some credit card points can be turned into either airline miles or hotel points or cash back. If you choose airline miles or hotel points, you are again essentially buying the miles or points with the cash back you could’ve chosen.
Pay For Performance
If you say whether you choose miles, points, or cash back, they are all free when you only signed up for a credit card or charged purchases you would’ve made anyway, you have to remember not paying cash doesn’t make something free. If I offer people lunch on the condition that they weed my yard, I don’t suppose they will rave about how they are getting lunch for free. They have to do the specific things I dictate. The gym in my office building isn’t free. I have to work for the privilege. As soon as I stop working here they won’t let me work out there any more. Miles and points work the same way. You have to do specific things to earn them. They are not free.
Banks aren’t charities. They know what helps them make money. If offering miles and points doesn’t achieve their business goal of making more money they wouldn’t be doing it. They want you to think you are beating them at their game. In this day and age of artificial intelligence, machine learning, and big data, you think they can’t figure out you never carry a balance? As Warren Buffett said, if you’ve been playing poker for half an hour and you still don’t know who the patsy is, you’re the patsy. You get miles and points only because you deliver profits to the banks. It’s that simple.
So why do people say they are getting free flights and hotel nights when they have to pay with miles and points and those miles and points are clearly not free? Because the word “free” occupies a special place in our mind. It instantly appeals to people’s unrealistic desire of getting something for nothing. They want you to do the specific things they want. I forget where I read every time you see the word “free” you should immediately translate it as “included.” Although you don’t pay for it separately, you still pay one way or another.