[lbo-talk] those credit card cash-back offers

[123hop at comcast.net]

I'm not sure if this means anything. There are certain things I must buy: groceries, gas, plane tix, auto repairs, etc. I am not buying "more" because I have a credit card, but I do use the credit card because of the cash back...and I get about $300/year back. Today I went to the doctor and was offered a 15% discount to pay cash/check rather than credit card. I jumped at the offer, and I hope it catches on. Otherwise, the cash back is nice particularly since I never pay interest.

Joanna

----- Original Message ----- 
From: "Doug Henwood" <dhenwood at PANIX.COM> 
To: "lbo-talk" <lbo-talk at lbo-talk.org> 
Sent: Friday, December 3, 2010 12:14:30 PM 
Subject: [lbo-talk] those credit card cash-back offers 

http://chicagofed.org/webpages/publications/working_papers/2010/wp_19.cfm 

Why Do Banks Reward Their Customers to Use Their Credit Cards? 
Sumit Agarwal, Sujit Chakravorti, Anna Lunn 

Using a unique administrative level dataset from a large and diverse U.S. financial institution, we test the impact of rewards on credit card spending and debt. Specifically, we study the impact of cash-back rewards on individuals before and during their enrollment in the program. We find that with an average cash-back reward of $25, spending and debt increases by $79 and $191 a month, respectively during the first quarter. Furthermore, we find that cardholders who do not use their card prior to the cash-back program increase their spending and debt more than cardholders with debt prior to the cash-back program. In addition, we find that 11 percent of cardholders that did not use their cards in the previous 3 months prior to the cash-back program spent at least $50 in the first month of the program. Finally, we find heterogeneous responses by demographic and credit constraint characteristics. 
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