In the credit-card turf war, platinum wraps plastic.
A premium credit card is typically associated with high social status and higher fees, but recent research suggests that people will choose them because it signifies higher income “over and above its benefits. Economists worked with an Indonesian bank that markets premium platinum credit cards to high-income customers. “Demand for the platinum card greatly exceeds demand for a nondescript control product with identical benefits,” according to the study distributed Monday by the National Bureau of Economic Research, a Cambridge, Mass.-based research group.
What’s more, the lower your self-esteem, the more likely you will opt for flashy credit cards with higher fees. “Social image is a substitute for self-image,” the researchers wrote. “Demand for status is psychological in nature.” Cross-referencing spending habits with psychological tests, the researchers found that increasing self-esteem causally reduces demand for status goods. (The study was carried out by economists from the University of Chicago, The World Bank, Sao Paulo School of Economics, Harvard University and University of California, Los Angeles.)
https://www.instagram.com/p/BUhxaQbA4Wt/There’s one real-world drawback: Consumers may use the platinum card in social situations when they’re better off using a less prestigious card. It can be a costly mistake, the study found. “While the card used in our study does not offer cash back rewards, at least 48% of platinum customers report owning other credit cards which do offer cash back at restaurants and similar transactions.” In order to appear wealthier, in other words, customers may actually forgo money in the form of cash rewards each time they use the platinum card instead of other cards in those situations.
Previous studies have identified “impulsivity” among people who want to escape unhappiness and low self-esteem. This 2010 study in the “Journal of Experimental Social Psychology” found that individuals conspicuously consume to signal their wealth. Or, put in academic terms, “The compensatory role of high-status goods has important implications for consumer decision-making and public policies aimed at reducing consumer debt.” Understanding why we put certain goods on credit is important to controlling our impulses, the researchers said.
Premium credit cards are becoming increasingly extravagant. Several metal credit cards have been released in recent months. In March, U.S. Bank announced the U.S. Bank Altitude Reserve Visa Infinite Card, which the bank hopes will rival Chase’s Sapphire Reserve and American Express’s Platinum. Even Amazon used a minimalist metal design for its Prime Rewards Visa card. They’re targeting big spenders and, if the latest research reflects U.S. consumers, those who want to appear to be big spenders.
High-end cards like the Sapphire Reserve and Amex Platinum charge hundreds of dollars a year to carry them, but often give out a large number of reward points initially. Despite such high fees, consumers may also have a hard time spending all those rewards to make those cards worth it. If every Sapphire Reserve card user’s spending qualified for the 100,000 point sign-up bonus — which was later reduced to 50,000 points — they’d have around 91 billion points to spend, an equivalent of more than $1 billion, the personal-finance website NerdWallet calculated.