Bonus Points and Rewards: Fiat That!

I’m writing to you today as a sip my dark roast coffee at my favourite local coffee joint.'s a Starbucks. 

It’s my preferred location to meet friends for coffee and to write/read/research when I need to get out of the house and surround myself with other adults, which is once a week, at most. This is my daily barista. 

When I order my coffee, I dutifully pull out my iPhone and let the barista scan my electronic gold card’s barcode to both pay for my purchase and to receive the bonus star I have coming my way for buying yet another tall dark roast coffee.

I carefully consider my actions every time I perform this ritual to make sure I stay mindful. Here's why.

Beware the Fiat of a Fiat

We’re increasingly removed from the true cost of goods. The evolution of financial systems has moved us along from barter economies to hard currencies to fiat currencies. We now exchange hard currency and the digital equivalent of hard currency (ones and zeros) for most goods and services. 

All of the world’s currencies are fiat currencies, meaning that we exchange a symbol of value that is only worth something because enough of us believe in its worth. It’s pretty scary when you really stop and think about it.

Unfortunately, we’ve become even further removed from true value, starting with the use of tabs and now credit cards. These little plastic squares have helped us remove the present cost of paying for something by deferring the payment by one month, or more if you carry a balance (which the majority of us do). Credit cards remove the pain of spending, at least temporarily. And they do their job well. Sad fact: Most retailers' profits are generated from their financing products, not from the sale of merchandise.

Now, we’re even further removed because we’re chasing a new symbol of “value”: rewards, points, miles, etc. We’re now up to 4+ steps removed:

barter/exchange -> currency -> fiat currency (aka "cash") -> credit -> rewards/points

We end up buying more stuff with cash or credit in order to increase our participation in some form of reward scheme that’s worth less than if we hadn’t spent the money to begin with to buy the stuff that we might not even need or want.

Back to my yummy cup of dark roast coffee...


Every time I order a coffee at Starbucks, I think about the cost of the coffee (in my case, it’s $2.03 CDN including tax for a drip coffee in my favourite canteen) and what I’m getting for it: 12oz of decent coffee, some amount of 10% cream, unlimited free refills...and a bonus star.

I think about the value of the good in question, my opportunity cost, potential substitutes and, most importantly, what the bonus star means in cold, hard cash.

Here’s how I think of it:

  • I pay $2.03 for 2 cups of coffee with cream (I always get a refill). 
  • Given I always use the "free reward" to buy a $4.80CDN spinach feta wrap or a similarly-priced venti Americano (food items I buy on occasion as a treat), the value of each star is $0.40 ($4.80/12) as it takes 12 stars to get the "reward".
  • The true cost to me of a coffee I would buy anyway is therefore: $2.03-0.40 - $1.63, or $0.81 per 12oz of coffee.
  • I then use the adjusted cost to decide whether coming to Starbucks and using their shop as my office for a 1/2-day of work (free WiFi) is worth it. For now, it’s cheaper than any other equivalent option!*

Here’s why it’s important to me to think this way:

Bonus points and rewards dumb us down!

They make us change our behaviour in material ways.

Why Are Bonus Points and Reward$ So Effective?

Most of us don’t bother with calculating the true dollar value of the points/rewards programs we participate in. It takes time, effort and it’s more fun to think about the rewards in terms of points and “free” rewards than what we've had to spend to get the rewards. Who doesn’t like to get a reward (aka "treat") or feel they’re “saving money”, right?

There’d be nothing wrong with these schemes if they didn’t cause us to spend more. There's a reason companies offer them...they WORK.

It’s amazing what we’ll do for points. Here’s an example:

I received a 4-bonus point offer from Starbucks for whole bean coffee:

$16.95 CDN for a pound of coffee - 4 stars (4 X $0.40) =  $15.35 (works out to 10% off)

Yeah. I don’t think so. I can get 2.5lbs for $22.95 at Costco, or $9.18/lb

Translating the bonus points into real dollars helps me keep my head on straight and keeps me from falling for offers that trigger my lizard brain’s propensity to experience the loss aversion associated with not taking a company up on its "special offer". (I dare anyone who uses points to tell me they don't think "but I'm going to lose the points if I don't take the deal" least for a split second.)

The examples I used above brings the bonus points back to what I can better understand: their actual monetary value when applied to something I'd purchase anyway: coffee and an occasional breakfast/lunch option at the same or a equivalent establishment.

Based on the above, what do you think of this offer? ;)

Based on the above, what do you think of this offer? ;)

Bottom Line: Converting every incentive into actual dollars and cents has spared me numerous times when dealing with airlines, credit cards, reward cards and the like. Only rarely has a “great points offer” been as good as it seemed to be. 

What do you think of loyalty or points programs? Do they drive spending? Cost savings?

*OK. Except for the library. I could bring my own coffee to the library and work there, which I do sometimes, but it's just too quiet and scarce. I might as well be at home. So the coffee shop's my choice most of the time.