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Is it ironic that Citi, a bank on the brink of disaster, is now marketing a credit card that “rewards” card holders for good financial behavior? This new credit card marketed toward Generation Y and teenagers, Citi Forward (and Citi Forward for College Students), offers benefits such as 100 points for paying on time and staying within your credit limit each month, 5 points for each $1 spent in “responsible” categories such as books, movies, music, and restaurants, 1 point per $1 for all other purchases, and 5,000 bonus points for signing up for paperless statements.
The most attractive feature is a quarterly reduction of APR by 0.25 percentage points after 3 months of making a purchase and staying within your credit limit and paying on time. This reduction is limited to eight in total and will only be applied if you continue to make purchases using the card.
Why is Citi taking this approach? The company surveyed 1,000 consumers and found:
76% of [survey respondents] said they would rather learn by being rewarded for the right things they do, rather than learning from their mistakes.
I seem to remember a college professor explaining that positive reinforcement is more effective over punishment when your goal is to change someone’s behavior. But don’t get the wrong idea, Citi card holders will certainly be punished if they make a mistake. The default interest rate — immediately charged if the card holder misses a payment — is 29.99%.
The points rewarded must be redeemed through Citi’s ThankYou network, which does not have a one-to-one relationship between points and cents, as the previous credit cards offering cash back rewards had. You would need to accumulate 16,000 points to qualify for a $100 cash reward. If you want a better “exchange rate,” you need to spend or donate your points.
It’s clear that the “responsible” categories for which Citi would like to “reward” its customers are not those that encourage good behavior. If Citi wanted to encourage financial responsibility, they would be promoting the use of libraries rather than purchasing books and buying groceries and cooking implements rather than dining at restaurants. I happen to be a fan of movies and music, but these are two categories where strapped consumers may wish to cut back spending in this recessionary economy. Furthermore, Citi claims that rewarding customers for choosing paperless statements is based on the idea that saving the environment is good, but I think even the targeted teenagers understand that it costs Citi a significant sum to send paper statements in the mail.
The 0.25 percentage point reduction in APR is a good start, but if Citi wanted to encourage true financial competence, they would reward customers for paying bills in full each month.
What do you think about Citibank’s latest credit card?
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Until now, I’ve managed to hold completely free accounts at Wachovia. While I’ve been charged fees for various reasons, perhaps mistakes on my part like allowing my savings account balance to dip below a minimum level, Wachovia has always refunded the charges. In fact, I’ve been quite happy with the bank’s customer service all around from the beginning.
