FLGRPart 3: Understanding and Applying Financial Literacy

Introduction

In this part, you will be exploring the following financial literacy concepts:

loyalty programs
incentives
advertisements
credit card rewards
fees

These concepts will help you manage your money and make well-informed decisions that reflect your personal experiences, beliefs, values, and choices.

It’s important to recognize that everyone’s financial situation is different. Be sure to focus on what works best for you rather than comparing yourself to others.

Loyalty programs, incentives, and rewards

Companies often use advertisements, promotions, and rewards programs to attract customers. These offers may include loyalty points, discounts, cashback rewards, free shipping, or other incentives.

Understanding how these offers work can help individuals determine whether a promotion provides good value and supports their financial goals.

We will explore different ways companies encourage consumers to purchase products and services, and how individuals can determine whether an offer provides good value.

What are loyalty programs, incentives, and rewards? How can they help consumers save money or receive additional benefits?

Let’s explore these questions by revisiting some key concepts.

Loyalty program

A loyalty program is a type of incentive program that rewards consumers or members with discounts on purchases or points that could be collected and used for future purchases.

Incentive

An incentive is a reward offered by a company to encourage consumers to buy or use their products. Incentives may include discounts or free shipping.

Cashback

Cashback is a type of incentive offered by some credit card companies that rewards the cardholder with cash or credit equal to a small percentage of the total amount spent on purchases.

Loyalty programs

Loyalty programs are a marketing system used by companies to encourage consumers to shop at their store regularly. The main goal is to keep customers coming back to their brand instead of shopping elsewhere.

Customers sign up for a loyalty membership by providing some personal information such as a phone number or email address. Usually, the membership is provided for free. Stores may also ask for other personal information such as the customer’s birthday. This information is used to personalize the offers sent to consumers through direct email or text message marketing.

Each time a customer makes a purchase, they earn points that can later be exchanged for discounts, rewards, or free products. There may be additional rules to loyalty programs, so it is important to pause and consider the advantages and disadvantages of these programs.

Consider the following scenario where Nimki needs to determine whether signing up for a loyalty program would be beneficial for him.

Nimki would like to purchase a bicycle that he can use to travel to school and other activities in his community. As he begins comparing different bicycles and retailers, he notices advertisements promoting different loyalty rewards programs. If Nimki signs up for one of the programs, he would have the chance to collects points from his purchase. He is not sure if the points he would receive would be worth it.

Take a moment to think about what Nimki needs to consider when deciding if he should sign up for a retailer’s loyalty program.

Press the following tab to compare your thinking to the suggested answer.

First, he would need to consider if he is comfortable with providing his personal information to the retailer. Second, he would need to decide if he would want to buy anything else from the retailer. If he doesn’t end up spending the loyalty points, then it would not be worth collecting the points.

Short-term incentives

While a loyalty program is one type of incentive, not all incentives require a consumer to provide personal details to join a rewards program.

Short-terms incentives focus on getting customers to take immediate action to make a purchase. Some features of short-term incentives may include:

Flash sales — The price of a product is reduced significantly but the sale only lasts for a few hours.
Instant rebates — Customers receive immediate cash back or savings when purchasing a product.
First-time buyer discount codes — A unique code that is provided to a new customer as a one-time welcome discount when they provide their email address. The company will then add the email address to their batch marketing emails.
Bundled gifts — Customers are offered a free item if they make an immediate purchase.

Explore the following images for more examples of incentives or loyalty programs.

Some examples of the deals that companies might offer could include:

buy one get one free
buy one get one 50% off
discounts (e.g., 25% off)
free shipping with orders over a certain dollar value
free gift after spending a specific amount on purchase

Consider the following scenario where Nimki needs to determine whether a deal is beneficial for him.

Nimki is comparing different retailers while looking for a new bicycle. He notices that the retailers have advertisements with different promotions, including discounts, free shipping, cashback offers, and other special deals. Some of the offers appear to provide significant savings, but Nimki is not sure whether they are all worthwhile.

Take a moment to think about questions Nimki might need to consider when determining the benefits of a deal.

Consider the options

Before making a purchase, consumers should take time to think about their options. When trying to make an informed decision, they should consider the following questions:

Is the product a want or a need?
Is the purchase within budget?
What is the total cost, including taxes, shipping fees, and other charges?
Does the incentive provide real value, or does it encourage additional spending?

What is the value?

When deciding if a purchase is within their budget, a consumer will need to determine the total cost of the item. The total cost may be more than anticipated because of taxes, shipping fees, and other charges. Further, if a consumer decides to use an incentive, loyalty program, or rewards program when making a purchase, the price may be affected.

Before making a purchase, it is important to learn more about incentives, loyalty programs, rewards, and fees to determine which offers provide the best value. Consumers should keep the following key considerations about incentives, loyalty programs, rewards, and promotions in mind when evaluating their choices before making their purchase. Press the following tabs to learn more.

Exclusive online offers

Some deals are only available online and may require payment using a credit card or another online payment method. When shopping online, it may be more difficult to closely examine a product than when shopping in person.

Additional costs

Some additional costs, such as shipping fees, may not be visible until the final stages of checkout.

Personal information

Some discounts require customers to provide personal information, such as an email address, to create an account or receive promotional emails.

Promotions used to upsell

Some retailers offer promotions such as free shipping, bonus loyalty points, or a free item with purchase. While these offers may seem appealing, they may encourage customers to spend more money or make a purchase before they are ready.

Reward credit cards

Some credit card companies offer different types of cards to meet their customers’ financial needs and spending habits. This allows credit card companies to manage lending risk, target certain demographics, and incentivize consumers.

Common types of reward cards offered by credit card companies include:

Cashback — The cardholder receives cash or credit equal to a percentage of their total purchases.
Reward points — The cardholder earns reward points to use on products or services such as dining, travel and groceries.
Bank loyalty — The cardholder earns rewards on banking products like extra credit or savings.

Most cashback or rewards cards have an annual fee that is charged to the cardholder This fee must be paid by the cardholder every year to maintain an active card account. The amount the cardholder must pay is usually linked to a card's benefits. Cards with higher annual fees usually have higher reward-earning rates or other perks. Annual fees can range from $20 to $150 for standard rewards cards.

The Annual Percentage Rate (APR) of a credit card represents the yearly cost of borrowing money using a credit card, including the interest rate and late payment fees. Interest will be charged if the cardholder does not pay back the money according to the rules set out by the company.

Additionally, rewards credit cards may only be available to people who meet certain requirements, such as a minimum income, a history of on-time payments, to name just a few.

Example card offer

It is important for consumers to look at the details of credit card offers because each offer includes its own combination of costs, features, and benefits. By comparing the details, consumers will be able to choose one that suits their needs.

Let’s explore the incentives, benefits, costs and requirements in following credit card offer.

Canadian Bank Saver Credit Card

A card designed to help you make the most of your spending, with an exceptional rewards program that offers you 2 times the points per dollar on net dining and entertainment purchases and 1 point per dollar on gas and grocery purchases.

Introductory offer of 20,000 reward program points

Available to new Bank Saver credit card customers with a minimum spend of $1,500 or more in new purchases during the first three months. Simply put, 20,000 points can be redeemed for $200 cash back.

0% Introductory APR

Offer valid on credit card purchases and balance transfer for the first 12 months (the introductory period).

Competitive purchase APR

Variable APR of 18.99% or 19.99% will apply after the first 12 months.

Travel and shopping benefits
No foreign transaction fees
$0 annual fee

** for qualified customers, Annual income requirement of $70,000

As you explore the example offer, consider the following questions. When you are ready, press each tab to compare your response to the suggested answer.

1. What are the incentives offered by the card?

The incentives of the card include:

two times the points on dining and entertainment
one point per $ for gas and groceries
20,000 introductory rewards points
0% introductory APR
travel and shopping benefits
no foreign transaction fees
no annual fee

2. Are the incentives beneficial to all consumers?

Some of the incentives may not be beneficial to all consumers. The card offers travel and shopping benefits through a points program. Also, when traveling abroad, there are no foreign transaction fees. If a card applicant rarely travels, then the card may not be worth it to them.

3. What are the costs of the card for the consumer?

Initially, the costs of the card for the consumer would be very low. The card does not have an annual fee, and the customer is being offered a 0% introductory APR for the first 12 months. After 12 months, the APR was variable and much higher at almost 20%. Although this seems like a big adjustment, this is within the typical range for most credit cards. When choosing to apply for this credit card offer, a consumer would need to be aware that the introductory APR will change.

4. Does the applicant need to meet specific requirements to be approved?

To be approved for this card, a person would need to have an annual income of $70,000. There offer also states that there is a $0 annual fee for “qualified customers.” Knowledge of the term “qualified customer” would be required for this credit card.

5. Who might the target audience be?

Based on the requirements for this card, it appears that the audience is a person who is working a full-time job. To receive the maximum benefits offered by the card, the person would also enjoy shopping and travelling.

When choosing to apply for this credit card offer, a consumer would need to decide if the incentives, benefits, costs and requirements of the Canadian Bank Saver credit card were right for them.

Compare and contrast

In Nimki’s research, he has come across information about three types of credit cards. He is interested in learning about the incentives, rewards, and fees attached for each card.

As you review Nimki’s research, consider the following questions:

Who is the target audience for each card?
What are the incentives and fees attached to each type of card?

Press the following tabs to explore the details of each card.

Royal Bank of Canada World Elite Mastercard


	Interest rate	19.99%
	Annual fee	$0
	Minimum credit limit	N/A
	Features	Get an annual World Elite round-trip companion voucher starting at $119 CAD (plus taxes, fees and other ATC charges). Get up to 450 WestJet dollars—250 welcome WestJet dollars plus earn an additional 200 WestJet dollars when you spend $5,000 in the first 3 months.
	Minimum income	$80,000

TD Canada Trust Platinum Visa


	Interest rate	19.99%
	Annual fee	$89
	Minimum credit limit	$2,000
	Features	Earn 3 TD Rewards Points for every $1 in grocery purchases and regularly recurring bill payments. Earn 5 TD Rewards Points for every $1 when you book travel online through Expedia. Earn 2 TD Rewards Points for every $1 you spend on all other purchases.
	Minimum income	none

Scotiabank Gold American Express


	Interest rate	19.99%
	Annual fee	$129
	Minimum credit limit	$5,000
	Features	Earn 5 times Scotia Rewards points for every $1 CAD spent on eligible grocery stores, restaurants, fast food, and drinking establishments - includes popular food delivery and food subscriptions.
	Minimum income	$12,000

After reviewing the concepts, you may try the following optional activity to check your understanding.

Check your understanding

Final thoughts

After comparing the costs, conditions, and potential benefits, it is important for individuals to choose the option that best supports their personal goal and budget. A promotion is not always the best choice simply because it advertises a discount or reward. It is important to consider the total cost, any additional fees, and whether the offer meets a person’s needs.

By researching your options and thinking carefully about the information available, you can make informed financial decisions. The best choice for you may not be the same choice someone else would make, because financial decisions often depend on your goals, circumstances, and priorities.

Practice assessment

Complete the following practice questions to familiarize yourself with the question structure, format and layout of the Financial Literacy Graduation Requirement. Press the Check Answer button to see how you did.