Reader Rob P asked for,
[a] post on your “earn and burn” philosophy would be helpful. How do I know if I’m hoarding too many UR points and not spending them enough?
I explained ten years ago why points programs devalue. They’re private currencies without any binding constraints. The Supreme Court even limited your right to sue this year. Programs can do as they wish with impunity.
There’s tremendous value in frequent flyer programs but you should not save points now for some future day in which you might spend them.
In general your points will never be worth more tomorrow than they are today. The only real exception to that has been the introduction of alliances. The ability to redeem across partners, even on the same award ticket, made existing points more valuable not less valuable.
But the cost of awards goes up, and in most cases the rules associated with redeeming awards get more restrictive (the United-Continental merger is an exception, as it spelled an end to United blocking otherwise-available awards when the airline didn’t want to pay for the seats and also led to more generous routing rules).
In general I recommend points that transfer to other programs, you’re diversifying your points holdings even by accumulating a single currency. Starwood, Chase, American Express (and to a lesser extent Diners Club and Citi’s Thank You Points) are more desirable than individual airline miles because you can put your points where you need them when you need them later.
But this isn’t a panacea. Transferrable points can devalue. We just had a scare with Chase removing points transfers to Korean Air from its website, although it looks like this may be temporary and we’ll get these transfers back. But it serves as a reminder that even these programs can devalue – although usually with notice.
American Express has lost transfer partners many times in the past (US Airways, Continental, Northwest, to name a few). Starwood has devalued its transfer ratios… Qantas used to be 1:2. United used to be 1:1. For a time Singapore went down to 2:1 but was brought back up to parity.
There are two lessons:
- Burn as you earn. You don’t care about devaluations as much if you are earning and burning in roughly the same period, under the same award chart. It’s much easier to earn points than it used to be. What’s a problem is earning points 10 years ago, when it was harder to do so, and spending them now when awards are more expensive.
- Diversify your points. I like having Chase, Starwood, and Amex points.. and also points with various airline and hotel programs. That way I don’t take a hit to my entire portfolio when a single program devalues.
These two pieces of advice sound somewhat in conflict and they are. Diversifying involves building up large points balances that you aren’t likely to spend right away.
The truth is I earn points too quickly to spend them right away, so I want to have them spread out as best I can. Plus I don’t know what my future self will want or need in terms or rewards. I’m hedging not just devaluations but unknown future preferences.
I don’t want too many points. I want to have enough points in a given program to redeem them, and then earn points in the next program until I have enough for the redemption I’m likely to want. And then the next program. Meanwhile I’d be redeeming.
Although in practice I diversity, I spend points regularly, but I earn faster than I burn. So I will become the victim of devaluations, as I have in the past. Knowing that causes me to discount, now, how much I value the miles I’m accumulating — so I’m willing to spend less to accumulate them than if I were going to use them in the near-term.
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