Baby boomers do not evaluate the various promotional cards and programs they are constantly being offered, say financial advisors.
Some boomers are not even aware they have the cards, or that the cards have costs, both hidden and surface, says Richard L. Akins, a financial advisor at LPL Financial Services, Portland, Ore.
Should financial advisors devote time to discussing this with clients? If so, how? NU spoke with some advisors to find out.
Promo cards and programs are not extensions of credit. They are incentives to buy products and services. They include smart cards, cash cards, discount cards (including medical discount cards), gift cards, buyer rebate offers, and customer loyalty programs from airlines, hotels, tech firms and other businesses.
Akins says he definitely discusses these cards and programs with clients.
His purpose is not to get clients to stop using the cards, but rather to make clients more aware of their full financial picture. It’s part of the client education process, he says. Such discussions do not generate revenues, he allows, but they do help clients sort things out. “When you help people, you earn their trust,” he says. As a side benefit, “you get referrals and more business than you can handle.”
Conversations about this with clients who have money probably doesn’t make much sense, advises Carroll Busher, an agent with Financial Care Services, Kenwood, Mich. “That’s because it won’t affect them financially.”
But do discuss it with boomers who are in financial difficulty, he suggests. Such clients may see discount cards and programs as plusses without realizing the full consequences, he explains.
For example, some people who are strapped for cash try to cobble together medical, dental and vision discount programs, in an attempt to self-insure or fill in gaps in their employer-sponsored medical plan, he says. “A better approach would be to evaluate whether the boomer is likely to use the programs.”
Advisors can help with that evaluation, he says. And they can also help by exploring the consequences of doing something else with the money–say, putting it into savings at 5% interest or using it to bump up an existing employee benefit plan, he adds.
Client education about all this is necessary, says Akins, because many boomers seem to pay little or no attention to what they have.
“For instance, some cards give reward points, but they also charge a monthly fee,” Akins says. If the fee shows up in the boomer’s monthly bank statement, some boomers overlook the amount, he says. Or, if the card was offered by a bank, some boomers just keep paying the fee rather than analyze it–”because they have a high degree of confidence in the sponsoring employer or bank.”
Akins ties this buy-it-and-forget-it tendency to the fact that boomers have been commercially trained to buy. The purchase or acquisition of promo cards occurs because it fits in with boomers’ “buy today, use tomorrow” lifestyle, he says.
Some boomers are financially savvy by nature, saving money as a matter of course, notes Busher. But others are not naturally given to saving–they’re natural spenders.
“The spenders need to be taught to stop and think: Is this card or program a temptation to buy or does it involve something I will buy anyway?” he says.
Another issue is that “you really don’t know if you get full disclosure of the offers,” says Larry Schneider, principal of Disability Insurance Resource Center, Albuquerque, N.M.
For instance, a boomer may sign up for a rewards program that accumulates points indefinitely, only to find out later on that the program has changed its policy and now puts expiration dates on the points. Was the consumer notified about this and if so, how? Schneider asks.
A good strategy is to evaluate the cards and programs by using two financial planning basics, suggests Busher. “First ask how to reduce existing costs and expenses, and then look at how to increase values.”
Example: If a boomer is interested in travel, it makes good financial sense to sign up for credit cards or awards programs that pay people for purchases by adding frequent flyer miles to the boomer’s flyer account. But if the person does not fly very often, the person might be better off buying airline tickets online, Busher says.
Similarly, if the boomer dines out a lot or frequents other local service firms, buying an annual discount book for $30 will pay for itself in no time, he says. “But the decision to buy still goes back to the main questions: Will I use these particular services, and am I prone to spend just because I have a discount?”
Even using credit cards to build up frequent flyer points can have drawbacks, Busher cautions.
“Those cards can be an advantage if the boomer is disciplined enough to pay the credit card bill in full each month,” he explains. But if the boomer is carrying the balance over from month to month, the interest charges could outweigh any gain made from frequent flyer points.
The use of promo cards is akin to using debit cards from a bank, notes Akins.
Certain debit cards levy a transaction fee each time the customer uses the card to buy something, he explains. Younger boomers seem to like to use those cards to buy fast food, he observes. “But if the transaction fee is 75 cents and the order totals only $4, that’s equivalent to 18% interest.”
His goal is to make clients aware that the various promo cards and programs have costs. This includes hidden costs, such as seeing reward points expire before being used, discounts that become meaningless because the item is not purchased, and loss of value from cash or gift cards that are lost or never used.
Akins says his training in selling life insurance has helped explain the relevant issues to boomer clients.
“People generally don’t like to pay life insurance premium, so we focus on the need–the boomers’ need to protect the family.” It’s the same with the cards and programs; he encourages boomers only to use cards that meet their needs.
Likewise, regarding life insurance commissions, he points out that “you pay commission on everything, whether it’s up front or hidden….The same is true with promo cards and programs. As the saying goes, you can run but you can’t hide.”
As for cash and gift cards, Akins tells clients not to buy them unless they or their recipients intend to use them. “If you don’t, you get nothing for them, and they will eventually expire.”
As for customer rebate programs, Akins says, “if you get a rebate on something you need, that’s good use of the program; the rebate makes the item cheaper.”
But he cautions against buying something that’s wanted but not needed, just because there is a rebate.
This is sometimes hard for boomers to do, he allows, speculating this is because “many boomers are used to thinking spend-spend-spend, I-want, I-want, I-want.”
Even so, Akins doesn’t argue for or against the cards. Rather, he zeroes in on opening up awareness.
If well structured and focused on something the boomer needs, the cards and programs can work to the boomer’s advantage, he points out. “Also, if a card is offered by a bank or employer, this provides a layer of due diligence.”
But if a client just signs up for a promo card offered on a credit card website, without reading the fine print, he starts asking questions.
“I try to get boomers to get off wants and back to needs. This gives them permission not to keep up with the Joneses.”
Does it change behavior? Often it does, he says, especially when there are regular checkups to be sure the clients are on track.
Busher’s suggestion: Boomers who are considering using promo cards and programs should ask: “Am I a saver or a spender?” The old adage, “know yourself,” can help sort through how to handle what to do next, he says.