This article, New gold bullion-backed credit cards being introduced soon, strikes an odd chord. Of course, the article does not provide details, but still, just think about it. Credit card (debt) and gold (investment) simply do not fit together in the same sentence much less as a financial strategy.
Generally, people invest in gold as either a numismatic interest in gold coins or as a hedge against losses in other investment vehicles (e.g., the stock market).
Without details and only speculating, the upside of a gold backed credit card could be a potential decrease from the astronomical interest fees some banks charge their best and fiscally responsible credit card customers.
But the downsides, again speculating, seem to far outweigh that advantage.
First, you would have to deposit your gold with the credit card company. This means, of course, that you no longer have control of the asset.
Second, your available credit line would fluctuate with the market value of gold. Depending on how you use the card, you would need to keep a watch on your available credit line.
Third, you would have to pay the credit card company fees for the storage of your gold and the management of the credit card. Plus, businesses go into business to make money, so will they also charge you interest in addition to the fees merchants pay them? Probably.
Now, wouldn’t it be wiser for individuals to cease and desist with their credit card debt?
Don’t misunderstand, credit cards provide a valuable service and contain protections above and beyond those of debit cards for individuals and businesses. In the spirit of “you get what you pay for,” reasonable fees for the use of those cards should be expected.
But, why involve an investment (gold) into the equation?
Perhaps the business plan behind these gold backed credit cards depends heavily on the spending habits of the last fifteen to twenty years. People had to have the latest and greatest, newest and best, things that everyone else had.
Yet as a population in these turbulent times, we have begun spending less and being more frugal with our purchases. That’s good, very good.
People, more and more every day, realize their financial futures depend on taking control. They understand Social Security is a tax on the working people and not a fund they can depend on in their latter years. Many people will not receive corporate pension plans which are almost extinct anyway, and their 401k plans diminish with the stock market.
Perhaps these gold backed credit cards will help people with their money management and fiscal responsibility strategies, but skepticism runs rampant.
Credit cards (debt) and gold (investment) … just odd….