New technologies have made it possible to use cards in places we never thought possible. Consider vending machines. Half the U.S. vending machines are expected to accept cards by 2009. They’re already being used to sell all sorts of electronic equipment in department stores, to say nothing of soda. The USPS will remove all stamp vending machines that take cash by October 2008; the new equipment will accept only plastic.

According to various studies, consumers will spend between about 32% and 50% more when they can pay with a card (scary stuff, I know), so cashless vending is likely here to stay. This can be a great convenience, assuming that you’re not a vending machine junkie or someone likely to be swayed by children “dying” for potato chips. And I’m sure we can all agree that it’d be great if quotations like this are soon a thing of the past:

But this new market comes with new dangers, especially if you have children. You won’t be able to end a discussion by saying, “Sorry, I don’t have any more change.” Certainly, the last thing college students need is another easy way to get themselves deeper in debt.

Children of all ages need to be warned not to overdo it at vending machines. Many students will likely be tempted by the new cashless vending machines in the cafeteria. The food for sale might be better for them than it was just a few years ago, but overspending and unhealthy food choices available at vending machines are important, timely subjects for family discussion.

Talk about the benefits of convenience versus the cost for the privilege—in terms of both your wallet and their waistlines! Point out that cashless vending is new and is designed to be very attractive to them—it’s something we’ll all have to learn to live with, in moderation. (However you define that is up to you.)

Let them know how high that cost might end up being if they use cards to buy soft drinks or snacks and don’t pay off the bill as soon as it arrives. A vending machine that takes plastic presents a good opportunity to talk with your family about credit and finances in general.

If you’re prone to impulse purchases, forewarned is forearmed: You might be sorely challenged by snazzy new cashless vending machines the next time you’re in a department store. They’ll be selling iPods, all sorts of other electronics gadgetry, and everything else they can. Keep the cards in your wallet and consider your budget before you toy with cashless vending!

Everyone wants to get through the line faster, and the latest in high-speed card transactions, “contactless cards,” is reportedly 63% faster than paying in cash. With contactless cards, you don’t have to swipe your card to make a payment. Instead, you simply wave your card near the card terminal. This definitely speeds things up when you’re checking out at a register or paying at the drive-through at a fast food joint.

Artcubed, an IT consultant and member of CardRatings.com’s forum, shares this report on his first time using the new technology:

Imagine how much time and aggravation you could save if, every time you got on the subway, went to the movies, or bought something, paying took less time and was easier and more convenient.

Say good-bye to swiping and hello to “tap and go” cards, technological marvels with names such as Chase Blink, AMEX ExpressPay, Visa Wave, and MasterCard PayPass. These cards usually operate through radio frequency identification (RFID) tags, radio waves, antennae, integrated circuits, cryptography, and microprocessors. (Don’t ask me to describe the technology in any more detail!)

Some large cities, such as New York City, have been negotiating with the major cards to come up with contactless solutions that work for commuters, government, and lenders. That will surely be a real plus to everyone who uses mass transit.

On the other hand, if it’s so quick, easy, and convenient, too many of us will likely spend more, and not necessarily on things that are good for us! (My mouth waters just thinking of the donuts in the TV commercial advertising one quick pay card or another, where a man slows down the line even though he has his money out and is ready to pay!)

One department store reports that customers who used contactless cards spent 44% more. Businesses that appeal to young people, that do a big cash business, and that aggressively market rewards are also extremely pleased with sales on contactless cards. In other words, we have another subject to discuss with our young ’uns and the big spenders in the family!

Although I appreciate the convenience of being able to “blink” lunch, a movie, or some other purchase, I am uncomfortable with the fact that typically no signature is required to “wave” up to $25 at one time. It’s too easy. I think it’s preferable to take a minute to think about your budget and then sign for a purchase. I’m afraid contactless cards can make our charges seem less real—and distance us that much more from “owning” our debts and taking responsibility for them. (Call me old-fashioned if you’d like!)

Another negative is that identity theft and privacy experts have serious concerns about the RFID chips. They say it’s too easy to steal our private information. The industry counters by saying it has state-of-the-art anti-fraud techniques in place. I say, where there’s a will, there’s a way. As a result, I’m personally steering clear of contactless cards for now. But given how beneficial the technology is to card issuers, I believe it will become much more foolproof in the near future. When that happens, I’ll probably be waving from time to time, too. No one wants to wait!

Card issuers are increasingly eyeing both “underserved” and “unserved” markets (that is, markets with little or no competition from other creditors). Getting that first spot in someone’s wallet is worth a lot in future business to lenders—more credit cards, car loans, mortgages, you name it!

Hispanic Americans are a good example of an underserved market. They’re the fastest-growing demographic in our melting pot and are expected to have more than $1 trillion to spend in 2010, when they will account for nearly one-sixth of our population. To card issuers, they’re ripe for specialized products and campaigns. I expect to see cards designed to specifically appeal to Spanish-speakers (there are already a few), both those who are already living the American Dream and those who are brand new to our financial institutions.

Similarly, market research shows that African Americans are underserved. They have fewer cards and use them less frequently than any other major group. Their buying power, which is estimated to be $981 billion in 2010, will be very attractive to lenders, who will be developing targeted appeals for these cardholders as well.

One of the latest unserved markets is high schoolers: Witness the offers for “prepaid teen cards” that have been popping up lately. This vast, largely untapped market is being sought after by card issuers and other entrepreneurs, who are well aware of the billions of dollars these youngsters spend—or get us to spend.

Although most teen cards are aimed at high schoolers, some are available for children as young as 13. Some have tools to help parents teach kids about money, along with cool bells and whistles to encourage kids to learn more. But many seem to be solely focused on making it easier for the precollege set to spend, spend, spend.

One key benefit is that these cards can dramatically cut down on the amount of cash that has to change hands between parents and teens. Avoiding a few visits to the bank or ATM machine can be a real time saver and a welcome convenience to many working parents.

Another benefit is that the prepaid cards expose parents—and kids—to far less liability than an open-ended credit card does. For example, if you put your child on your credit card and she or he spends a cash advance up to your credit limit, you’ll be responsible for the bill, and it will be your credit score that takes the hit for increased utilization. With a prepaid card, your teen can spend only a certain amount.

Unfortunately, most of these cards come with lots of fees that really add up: activation fees, monthly fees, loading fees, over-the-limit fees, ATM fees, live customer service rep fees, paper statement fees, replacement card fees, and more. Yikes!

Don’t be surprised if your teen pressures you to get one. Kids love the idea of having their own plastic, and the prepaid teen cards are marketed to them as cool status symbols. They certainly make it easier for youngsters to buy stuff.

Of course, we’d like to protect our kids for as long as we can and shelter them from the buying temptations at the mall or over the Internet, but that’s virtually impossible in this day and age. So teach them about money and credit we must.

That brings me to another downside of the teen cards. Kids can learn only so much by using one of these prepaid cards: They aren’t charged interest, won’t get any bills, don’t have to make any payments (unless you decide otherwise), and don’t incur any debts or face any other consequences (for example, to their credit report) when they mess up.

Certainly, kids should go off to college with a clean slate. They’ll have enough trouble keeping it that way once they get there! (For my advice on college kids and credit cards, see Chapter 7, “Start Out on the Right Foot—Credit Cards for Students and Savings for College.”) I support giving kids some real experience with money management before they graduate from high school, but the current prepaid teen cards might not be the best tool for parents to use. Hopefully, better teen cards will be forthcoming.

While I’m on the subject, the other two reasonable card alternatives for teens—debit cards and secured credit cards—have their pros and cons as well. I’ve toyed with the notion of using all three with my teenager. But when it comes right down to it, I don’t think most youngsters really understand that plastic in any form—prepaid, debit, secured, unsecured—is real money.

Although it’s a little more inconvenient, for now I’m one of those who pays kids in cash or by check for jobs well done and for allowances. This makes spending and budgeting decisions much more concrete. When there’s no more left, they’re out of luck and it’s time for Plan B—and that’s a great time to sit them down and talk a bit more about money, credit, and budgeting!

Unfortunately, far too many seniors are in no position to profit from their cards. Consider these five sad statistics:^[1]

The increase in senior indebtedness is the result of many factors, not the least of which is the astronomical cost of health care. The typical retirement age today is 62, three years before seniors can qualify for Medicare. Many early retirees find themselves without adequate health insurance, which means they’re forced to use their cards to pay medical bills.

This problem is compounded by increases in the cost of living and decreases in the value of nest eggs for all but the richest retirees. The result, according to Liz Weston, author of Deal with Your Debt (Prentice Hall, 2005), is that seniors must often use cards to bridge the gap between their reduced fixed incomes and their increasing expenses. Sadly, today’s seniors are going into debt to pay for necessities such as food, fuel, and taxes—not for the luxuries that younger folk might buy.

Although banks have well-established programs to attract seniors with free checks and safe deposit boxes, surprisingly, card issuers haven’t really aggressively marketed directly to this age group. With retirees turning increasingly to cards, I expect to see more issuers going after them, but so far, senior cards have few unique benefits and appear to be more marketing ploys than anything else. Retirees are usually better off finding a “regular” card that meets their needs.

One notable exception is the AARP Rewards Platinum Visa currently being offered by Chase. It comes with a six-month 0% introductory rate on purchases and balance transfers (a balance transfer fee does apply), along with the typical one reward point for each dollar spent. Seniors who take advantage of this card and similar ones can cut expenses while they pay off debts at a lower rate. A unique feature of this card is that unlike almost all other cards offered by large issuers, this one doesn’t have a binding arbitration clause (see Chapter 1, “It’s Not Just Plastic—It’s Money!”), which means that AARP cardholders have more legal rights and options than most cardholders.

With so many of us already having a pocketful of cards, lenders have to keep dangling carrots to tempt us into giving them a place in our wallets—or using their card when it’s there. If we don’t already happen to have it, why in the world would we want to bother to apply?

The card issuers who dangle the juiciest carrots are the ones that’ll get the business of smart cardholders. Others will be taken in by sophisticated marketing that makes the carrots only look juicy.

Whatever is capturing the attention of a lot of people is a hot prospect for marketing new reward cards. Consider global warming and environmental concerns in general. Because they’re becoming increasingly important to many people, some of the newest reward cards are “green.” Most are being designed to attract people who were moved by the March of the Penguins movie (which includes me!) and are being promoted by major issuers, including Wells Fargo, Citibank, GE Money, and Bank of America. Their strategy is to market to as many of us as possible via our concerns about the environment, whatever they might be.

A carrot they’re now dangling for these cards is a donation of a half a percent or so from every purchase to a well-known environmental group, such as the Sierra Club. They also might offer you discounts on ecofriendly goods.

Some cards even let you donate points to support complicated environmental projects. These are perfect examples of how targeted reward programs will evolve. A few major issuers are already publicizing sophisticated offerings to address complex issues, such as what you can do about greenhouse gases and how you can offset carbon emissions using your reward card! I guess the target market here must be the people who appreciated the details in Al Gore’s movie.

All kidding aside, I’m glad to see the card industry take steps to support our environment. I’m sure we can all do more for the planet if we try a little harder. And as far as green cards go, lenders are right when they say these cards are an appealing, convenient, and painless way to support the environment. Some even have beautiful pictures of animals on them.

But the truth is, the way these cards currently work, you can usually do more for the planet—and for your wallet—if you use a plain ol’ cash-back card. Compare the 1% or more you’d get on a cash-back card to the half a percent or so a charity would receive via a typical green card. My advice is to donate your cash-back money to your favorite environmental cause so it receives more than it would with the green card—often twice as much. Plus, it won’t cost you a penny more. In fact, it might actually save you some money because you could get a tax deduction, to boot!

The cards offering eco-points raise some other issues, including the fact that you have to spend a lot to benefit Mother Nature. Also factor in is this important caution about points from USA Today’s personal finance writer, Christine Dugas—which applies across the board to all cards offering them:

This is another reason why, based on the current green rewards, you are probably much better off with a cash-back card. Keep it simple, support environmental organizations with the cash you get back on the cards already in your wallet, and don’t litter!

New cards with perks geared to appeal to specific markets will be offered with increasing frequency. Competition is so fierce that I expect to see more cards that guarantee generous, unique, or practical rewards. If you own a home, for example, you might be attracted by cards that let you use points to pay down your mortgage. A few lenders have already introduced programs that let homeowners do just that. I must admit that using a card to pay down debt seems strange, but it can be an effective way to save money—as long as you’re buying items you really need and you don’t carry a balance on your cards.

Keep your eyes out for special bonuses in areas that are important to you. For example, you don’t have to be a health nut to be attracted to the benefits of a “healthy living” card that Aetna and Bank of America have joined forces to offer. You earn three points for every dollar you spend on health-related purchases, including visits to doctors and dentists, hospitals, fitness and weight loss centers, and vitamin stores. Discounts also apply to purchases at sporting goods stores and drug stores, as well as for exercise equipment and medical supplies.

Also be on the lookout for other cards that benefit both the cardholder and the issuer. I think of these as win-win cards. The cardholder wins by getting cash back, rewards, or points, and the lender wins by increasing business. I’m hopeful that we’ll also see more offerings with benefits that encourage people to manage their debts properly and use credit responsibly.

One such offering, Discover’s Motiva card, introduced in 2007, is targeted to people who carry a balance and can use some extra motivation to pay their bills on time. When cardholders make six on-time payments in a row, they receive the seventh month’s interest back in the form of a “Pay-On-Time Bonus.”

If you send in that seventh payment promptly, it counts toward the next set of six timely payments, so you can get two bonuses a year. You can use the Pay-On-Time Bonuses, along with other Discover cash-back bonuses, to pay down your card bill.

On a related note, as mentioned in Chapter 7, Wells Fargo is giving incentives to college cardholders to learn how to manage credit. The bank sent a mailing to almost 78,000 randomly selected new college cardholders, offering a 60-minute phone card in exchange for completing an online credit education program. The students who completed the program used their cards more responsibly than the control group, so teaching people about credit early on seems to benefit both the students and the bank. Wells Fargo sees the possibilities in this win-win situation and is now offering online education to all new student accounts. I think that’s great! These days, the incentive is a free matinee movie ticket from Fandango, which I hope will appeal more to college kids than the phone cards. I think they will—most already have phones, and anyway, which did you prefer way back when, phoning home or going to the movies?!?

If you’ve gotten this far, you know my credit card mindset. May it brighten your financial future just as it has my own. I truly hope you’ll take full advantage of cards for your financial benefit. It’s easy if you follow my advice:

You now know what to expect from card issuers, how they “think,” and why it’s so important to always read their fine print. If you play by the rules, the creative, out-of-the-box techniques I’ve discussed can add thousands of dollars to your bottom line through generous rewards and interest savings.

I can’t stress enough that playing by the rules is crucial. You now know what they are, so abide by them. Keep your eyes on your credit reports and scores. Be sure to respond promptly if you see any errors or signs of identity theft. Finally, remember that you aren’t married to your credit card! If you aren’t happy with the terms and conditions of your current card, by all means, shop elsewhere for a better deal.

The rest is up to you. I sure hope you’ll give my novel approach to cards a try. Let me know how you make out on CardRatings.com’s forum, where you can share your tips and insights, as well as get some up-to-the-minute credit news and ideas. Maybe it’s my Southern heritage, but I would like to think that we’re friends now—see you on the Web, good buddy!

In closing, remember this: If you always pay your bills on time, don’t spend more than your budget allows, view your cards as useful tools, stay on top of your credit picture, and always pay attention to the fine print, you’ll be well on your way to a bright financial future. As I added the finishing touches to this book, I was listening to the radio and a line of a country song caught my attention. The song talked about how much the artist had learned in the later stages of his life. One of things he said he learned was that credit cards don’t make you rich. I chuckled when I heard this! While I agree with this statement for this most part, I would argue that cards can indeed enhance your finances. So, go forth and profit from cards. You deserve it. Enjoy the ride—I know I am!