A Sad Thought: More Households have Credit Card Rewards over 401k Plans

by Brian Riley 0

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If you have adult kids entering the workforce, joining trophy-name companies, you probably have given them the same conversation I’ve have given each one of mine on 401k accounts: Put everything you can into your 401k, and always contribute the maximum amount when your employer has a matching program.  I typically start the conversation with 13 ten dollar bills, with the one bill to illustrate the original deposit and twelve to represent the probable earnings by the time they hit the ripe old age of 62.

The message is this: save until it hurts.

Here is an interesting read by an investor journal which cries about Americans putting off savings.  It is scary to think about how little people save versus how much they spend.

  • No surprise, Americans are putting off saving for retirement in lieu of more living in the moment—a tempting but potentially costly mistake (in more ways than one).
  • More people are enrolled in credit card rewards that are contributing to 401ks or other retirement savings accounts, according to a recent report by Value Penguin.
  • Examining data collected by Claritas Financial, Value Penguin discovered 61 percent of U.S. households participate in at least one credit card rewards program, while just 58 percent use any type of retirement savings

Now, I am the first to say that adult children should have their own credit files and understand the worth of a good FICO score.  Millennials and GenXers are at a disadvantage after the CARD Act of 2009, so I gave each one of my kids a jump start at credit by adding them as an authorized user on two of my cards, just to build them a credit file. The cards only come out of the family safe when there is a good reason, such as to let them put a significant purchase or to have when traveling.

But, you need to plan ahead, because before you know it you will wake up and find yourself 60 years old and living in Florida!

  • Plus, retirement accounts require participants to give up part of their income now in order to enjoy the financial benefit of doing so later—sometimes decades down the line. In contrast, many credit cards are free or low-cost. And for those who pay off their balance each month, rewards programs are seemingly offering something for nothing—right now.

Call me cautious but I still save more than I spend.  Reward points are fun to accumulate, and I’d say that our household generates about $2,500 a year by putting household and discretionary spending on cards, along with incentives.

…there’s nothing like having money in the bank, though.

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

Read the quoted story here

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