Manufactured Spending In Canada Introduction
Yesterday The CBC published an article about manufactured spending in Canada which featured a story from fellow Canadian blogger, Avery, from Don’t Call The Airline. The article briefly talked about what it was, and highlighted a simplified version of leveraging the Canadian Mint to earn massive amounts of credit card points for ‘free’. Sounds great, right? Well, the thing is, manufactured spending in Canada isn’t as simple as the article made it seem, so I thought I would write a short post with my thoughts on the somewhat controversial topic.
What Is Manufactured Spending In Canada?
As the name suggests, manufactured spending in Canada is the process of purchasing goods/services that can easily be converted back into cash to pay off the credit card. Essentially, you are manufacturing credit card spend without spending any real money. This is in contrast to organic spending, or the everyday spend people put on their credit cards for daily purchases. So why would anyone do this? Two reasons really:
- Earn mass amounts of travel reward points on their credit card without actually spending any money
- To meet minimum spend requirements on new credit card accounts. Some credit cards, such as The American Express Business Gold Rewards Card and the Business Platinum Card have $5,000 spend requirements and massive welcome bonuses, however, many Canadians wouldn’t be able to reach those spend thresholds with organic spending alone
The article published by CBC used a well-known example (which has recently been shut down) where the Canadian Mint sold face-value coins with free shipping, which could later be converted back into cash at any Canadian Financial institution. The part the article failed to mention, however, is that many banks had no idea how to process these legal tender face-value coins, with many reports that people had to shop around before finding a branch manager who understood the policy or was willing to look into it further. Also, the Mint had household limits (which could be circumvented with a bit of grey area ethics), and the coins were of various denominations. Generally speaking, the mint had more low-value coins than high-value coins, so to maximize the promotion you would be hauling in dozens and dozens of coins to your local bank worth anywhere from $1,500-$2,500 per cycle.
Manufactured Spending In Canada – Breaking Down The Value
Ok, so let’s take a closer look at just how lucrative manufactured spending in Canada is. Let’s say the mint is offering $2,000 worth of coins, and you purchase them all with your Starwood American Express Credit Card to earn 2,000 SPG points for the purchase (SPG points are subjectively the most valuable rewards currency in Canada).
The first step is purchasing the coins online. You go to The Mint website, scroll through all of the options, select all of the varying denomination coins, add them all to your cart, and complete the checkout process. Let’s say this takes 15 minutes.
Then you wait for shipping. Depending on where you are in your credit card statement cycle, you could be on the hook for the purchase before you’re able to convert the coins into cash, though in this example I’ll assume there’s no financing cost involved.
Your coins arrive a couple weeks later, and it’s time to cash them in! After work you head to your local bank (keep in mind you don’t technically need an account where you cash them in, but it probably won’t hurt when you need to convince the branch manager you aren’t insane). You haven’t actually been to a branch in a long time and forgot how busy they are! Let’s conservatively estimate the driving time combined with waiting in line takes about 30 minutes.
You get up to the counter with your bag of loot and inform the young teller you’d like to convert some coins to cash. She rolls her eyes and takes your bag of coins.
“uhm excuse me sir, what are these…?”
You reply back
“those are Canadian mint face value coins. They’re legal tender. Can I have my cash now?”
You try to convince the teller for about 15 minutes before she finally decides to get her branch manager involved. The branch manager thinks you’re from Mars, and tells you you’ll need to take your funny money elsewhere. Technology at hand, you show her the many blogs on travel hacking confirming the validity of Mint coins, and she reluctantly calls her contact at head office to confirm. Another 20 minutes and you’re out the door with cold hard cash.
Traffic has gotten worse than when you came, and this time it takes 20 minutes to get home. Once home, you quickly login to your American Express online account and pay your bill, which takes about 5 minutes. That was easy… or was it? Either way, you’re 2,000 SPG points richer! Woohoo!
In this example, the total time commitment was 1 hour and 45 minutes from start to finish, not considering the amount of time it took to research/learn/consider the basics of manufactured spending in Canada.
According to Stats Canada, the average couple household earns $85,560/year in Vancouver, or , $42,780 per person, per year. This works out to $20.57/hour (probably grossly underestimated for the demographic that would be manufactured spending, but I digress).
Now let’s consider how much Starwood Preferred Guest points are worth. Putting a value on points is highly subjective, with many travel hackers offering a 2-3 cents per point valuation. For this example, let’s be generous and assign the higher-end estimate and give each point a 3 cent value.
So, those 2,000 SPG points you earned for free are worth roughly $60 when used towards a flight or hotel redemption (given you get 3 cents per point). The time it took you to earn those points, given your hourly wage of $20.57/hr, was worth $36. Now your net ‘reward’ is worth $24. Seems like a lot of work for low-value results.
Now, this article may get people saying ‘but I do it in my spare time, so it’s not like I’m actually out any hours at work’ or ‘I get 10 cents per point on my redemptions so your math is bogus’, but the reality is, time is valuable, and many Canadians can probably agree it’s not easy to spare. I’m not saying there are no scenarios where a little bit of manufactured spending in Canada could make sense (can help when meeting minimum spend requirements easily when churning credit cards), but relying on it as a way to boost reward point balances is ridiculous, and simply not worth the effort, in my opinion.
Manufactured Spending In Canada Bottom Line
There are a lot of different opinions on manufactured spending in Canada, with me personally leaning towards it just simply isn’t worth the time and effort. I think there are many opportunities to earn reward points quickly in Canada without the need to manufacture spend. Also, there are some variations of manufactured spending which can be helpful in meeting minimum spend requirements when churning credit cards in Canada. I think people are skeptical of travel hacking, and schemes where certain program terms are abused, or worse, when goods/services are purchased and returned (return fraud, by the way) to meet minimum spend requirements only increases skepticism in the industry.
I’m also one who considers the cost of any transaction in life (time, money, lost opportunity, social cost…. admittedly I’m a bit of an over-thinker). The Canadian Mint, as an example, surely wasn’t expecting people to purchase coins with the intention of them being returned at banks, and I think this likely contributed to the program being shutdown. While I personally don’t care about The Canadian Mint losing money, I do feel a bit sad for anyone who may have been a legitimate coin collector who no longer has access to the program. Why should I get to enjoy myself flying around the world in first class at the cost of some 70 year old in Halifax who no longer gets to buy collector coins for his grandkids.
Have you had success with manufactured spending in Canada? Share your thoughts in the comment section below!