The Art of Cream Skimming

\"cream_skimming\"I just received my second 50K airline miles bonus for this year on the world’s biggest airline for getting an identical credit card from the issuing bank. For those who are new to travel hacking (and trust me, this is just the minor leagues*), here’s the step by step:

  • I applied for a “platinum” card, spent $3K, and got a 50K mileage bonus
  • I applied for the same identical platinum card two months later, spent another $3K, and got another 50K mileage bonus

I understand why a credit card bank would give a signup bonus – it’s bait to get you in. I just cannot fathom why they’d give me a second bonus for the same card when I’m already their customer – that’s like going up to an animal you’ve caught in your trap and stuffing another piece of bait in its mouth.

But then I got to thinking. Credit card companies aren’t stupid (I assume), and it’d be really easy for them to block people from getting the same bonus twice. But they don’t, so there must be a good financial reason for it.

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And then I realized: allowing you to get the bonus twice isn’t like stuffing more bait in your mouth; rather, it’s setting another trap for your other leg. An average consumer will carry balances at high interest rates, pay various fees, and rarely cancel a card. Handing them another card just increases the odds of producing a really profitable customer. It may even (here’s the cynic in me) be a great strategy to exceed the total credit limit the customer would normally be allowed under some fancy bank algorithm.

So it’s likely the credit card bank is being rational and is happy to bear the cost of double (or more) rewards as an “investment” in the customer.

The problem – though I certainly don’t view it as one – is I sit there skimming cream off of the whole operation. Every time a credit card company baits a trap with some nice signup bonus, I just walk over, disarm the trap, and pick up the bait. I get new cards, collect the bonus, never pay a penny of interest, and cancel the card if they won’t waive the annual fee. I’m not exactly the “target” customer they’re after (but this does show how credit cards, if used responsibly, can be outstanding financial products).

I’m getting great benefits out of a system that I pay nothing to support**, while lots of other folks pay a lot of interest and fees to fund the operation.

My Subsidized Life

I’d like to think that I pull my own weight and do a lot to contribute to society, but as I reflect on the credit card travel hacking game, I realize it’s not an isolated incident. In many different categories, my finances and happiness are subsidized by other people. They toil and sacrifice, and then I roll through and skim the very best cream all for myself.

A random – and certainly partial – list of subsidies I enjoy includes…


Financial

Property Taxes

I live in a nice neighborhood in a nice city with great schools. While my property tax bill is always a bit of a shock to me, it’s one of the lowest in my entire city. Sometimes by a factor of 10. So I am enjoying a rather massive subsidy from the folks who live in multi-million dollar homes and shoulder much more of the burden of funding my fair burg.

You’d think the tax man would give them a break – they already have to furnish, clean, maintain, and pay the mortgage for a much larger and more expensive house – but on top of all that they have a massive property tax bill! I do feel sorry for them, but those roads and schools aren’t going to pay for themselves…

State Taxes

I also get a huge subsidy from my state lottery . I don’t buy tickets myself, and last year the Texas Lottery contributed $1.2 billion to some fund to support public schools.

I don’t feel great about receiving this subsidy – it seems to be paid by lower-income folks chasing desperate hopes. But there’s not a lot I can do about it – no one is forcing people to buy tickets, and “a fool and his money are soon parted”. I doubt if the lottery went away that ticket sales would be diverted to 529 plans and IRA’s.

I’m not sure how much of the $1.2 billion I’d need to pay if there were no state lottery, but I bet I’d owe some. To borrow from a catchy lotto slogan, “someone’s going to get a massive subsidy from mathematically challenged folks, and it might as well be me”. To all of the folks shouldering this cost, which is probably far more than their fair share – thanks. And good luck!


Electronics

Cell Phone

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My phone is an LG Optimus L9. It is awesome. Seriously. It works as a phone, but does so much more: it can text, email, and take pictures and videos. There are a world of apps out there for it that can make it even more powerful (granted, I haven’t installed any of them, but the potential is limitless). But such awesomeness comes at a high price – it cost me over $100.

The funny thing is that despite my phone’s awesomeness, there are even more awesome phones out there. The internet tells me the iPhone 6 and Samsung Galaxy S6 are the cutting edge of technology right now (it should tell you something that I had to google this to find out) with prices to match. But consumers are snatching them off the shelves.

And the wild spending doesn’t end with hardware: many people have plans of $100 per month or more just for voice and data. You could buy an entire LG Optimus L9 for that kind of money!

If it weren’t for these consumers who are paying so much for phones and plans, my own would be a lot more expensive. A lot of R&D was spent and paid for before it ever trickled down to my Optimus L9. And the king’s ransom people are paying each month allows my own modest $40 plan to sit in a dusty, forgotten corner of the market.

If you’re sporting one of the fanciest of cell phones with a monthly plan to match, thank you very much for the subsidy. And yes, I agree that your phone does make you cooler. At least until the next model comes out.

TV

Electronic escalation doesn’t end with phones. My TV is dumb, but it is awesome. And being a late adopter means that my technology costs a lot less than that of early adopters.

I am convinced that I get just as much enjoyment out of my TV as people with 3D or 4K or 5Z TV’s get out of theirs. I know those owners look at me and sadly shake their heads at my silliness. But the feeling, of course, is mutual.

 

Entertainment

Free Periodicals

I like to peruse the WSJ and the Economist from time to time. I’ve been a happy paying customer in the past, but as much as I’d like to be a subscriber again, I can’t justify the prices they charge right now.

The bad news is that a ton of WSJ online content initially seems to be “locked” for subscribers only, and the Economist, after allowing me to read one free article a month, will tell me “You have reached your article limit” and ask me to subscribe to keep reading.

The good news is I don’t care.

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When I see the ominous “key” sign for premium content, or have reached my limit, I know what I have to do: copy the article title, paste it into google, and hit enter. Voila – the full article pops up and I happily consume. It takes me about 5 seconds per article.

Why does this work? I suspect it’s because these publications (and I’m sure many others) want great search results for their articles to bring in new subscribers, and search engines can’t access or index locked content. But by leaving this door open, I’m able to see the same content as subscribers.

So publishers, you can have it both ways – you can get great search results, and you can have paid subscriptions. You just can’t get one from me.

Free Sports

A while back I took my son to a college football game at the Death Star . I spent over $200 on tickets and $70 on concessions. This was a once-a-decade type of event for us, and he had a blast. As I was driving home, I had two questions:

  • Why did my son decide it was time to go home in the 4th quarter of a very close game? (alternatively stated, “why did I decide to take a 6 y.o. to a night game?”); and
  • Who on earth pays these types of prices more than once / decade?

There is no good answer to the first question, but the answer to the second question is a ton of folks. My little foray into live spectatorship was complete chumpchange compared to the average pro team season ticket holder’s spend. Serious sports fans can spend hundreds or thousands of dollars each season supporting their squad (tickets, jerseys, travel, special cable packages, foam fingers, face paint). And then there’s me, sitting comfortably on my couch watching HD sports with my $8 RCA over-the-air antenna. It’s nice a whole industry has been build by so many deep-pocketed enthusiasts for the sole purpose of bringing me high quality content for free.

Free Books

Checking out books from the library isn’t exactly breaking news on the savings front, but I’ve recently started checking out e-books from my public library (a lot of public libraries have them now), and gone from reading a handful of books each year to probably 50+. It’s amazing to watch people’s behavior when the marginal cost of an activity drops to 0 (Netflix bingeing comes to mind). And it’s just one more way that I enjoy a massive subsidy from other folks.

 

The list could go on and on, but that’s enough to firmly establish my cream skimming credentials. And my subsidized existence does raise a couple of important questions.

 Do I Feel Bad? Am I a Freeloader?

My answer here is a resounding no. We’re all big boys and girls, and people are free to do what they want with their money. If people end up creating and supporting industries that I can then piggy-back on, that’s just the way the market works.

It’s not like I’m demanding these subsidies – some, like the credit card rewards, seem to be completely nonsensical, and I’d be very understanding if they figured out a way to price discriminate against me. But I’d also be quite foolish to ignore these benefits as long as they are on offer.

And, despite my current frugality, I’ve done my own part in the past, supporting industries and taking the hit as an early adopter. If you’re a big fan of Dungeons & Dragons or Sid Meier’s video games – and let’s be honest, who isn’t? – you have me to thank for heavily supporting those products in their early, lean years. You are welcome, but believe me, it was my pleasure.

Would the World Fall Apart If Everyone Were Like Me?

How would writers survive if no one paid for their books? How would pro athletes and sports franchise owners make millions if everyone were such a cheapskate? Above all else, how could the world continue to function if we were living with 5 year old cell phone technology!!!

I suspect the world would be just fine. If everyone started googling WSJ articles rather than paying to read them, the WSJ would change its model. Credit card companies would stop the giveaways and start charging for my free line of credit if they couldn’t earn interest and fees from the masses. I’ve bought lots of books before, so if needed I’d be happy to start paying for them again and keep writers out of bread lines.

If everyone were like me, some things would change, and we might have to live with slightly less cool stuff. But we’d also all be fine with that, so I think things would work out well.

There is no risk of that happening, however. There will always be crazy and undisciplined spenders out there – early adopters, gadget junkies, and conspicuous consumers with lots of money (or credit lines from their new cards!) burning a hole in their pocket.

And wherever they go, huge opportunities will follow. They’re mine – and yours – for the taking.

 

 

* By the end of 2015, we’ll have earned at least 350K airline miles plus a nice chunk of hotel points. But I’ll still be a mere grasshopper in the world of travel hacking – for the major leagues check out (among others) the Points Guy and Nomadic Matt .

** Sure, the interchange fee from my purchases helps the bank a little, but I’m just about as far from their ideal customer as possible.

 

 

2 thoughts on “The Art of Cream Skimming”

  1. Great article! Just cancelled my WSJ subscription – the copy & paste trick works with barrons.com, too. Thanks, PK!

    1. Great! Who knows how long that little hack will work, but we should all make hay while the sun shines.

      I’d love a day when all the paid periodicals…
      1) charge only a portion of what a print subscription costs (they are saving a boatload on print and distribution, aren’t they?); and
      2) step away from the “intro” + hockey stick pricing model (charged to your conveniently on-file credit card information) so these prestigious publications feel less like a bait and switch

      …but I’m not holding my breath. As a cream skimmer, you just need to accept you’re in the minority of consumers and act accordingly 🙂

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