Cash registers across America should post a new holiday shopping sign: The richer you are, the less you pay. That may sound outrageous, but it’s true.
Though it’s unlikely to be advertised on a sign anywhere soon, the U.S. payment system has turned cash registers into engines of economic inequality. Driving this new system, in which the wealthy receive large discounts and the non-wealthy don’t, are ever more lucrative credit card reward programs and the government policies that promote them.
What’s in your wallet? The answer depends on how much money you have. If you have been doing well financially for a while, chances are you’ve qualified for an elite credit card — with reward perks like frequent flier miles, hotel stays or cash back every time you shop. The wealthier you are, the higher the rewards and bigger the perks the card companies offer.
How you pay and how much you make is strongly correlated. If you make less than top dollar, you can still qualify for a card, but it’s likely to have fewer rewards (3% becomes 1%). And if you’re among the half of Americans considered to have “subprime” credit, then you are more likely to be using your debit card with no rewards program at all. Folks at the bottom of the income list tend to use cash or prepaid cards, generating no perks. The payment system is designed this way, as research from the Federal Reserve Bank of San Francisco shows.
The economics of modern credit cards are often…