Points Are a Currency – And YOU Get to Set the Value

Also see: 

Link: Axiom for Bank Points and Airline Miles
Link: I Use Miles Because I Won’t Pay Revenue Prices… Right?!

Peeps conceptualize their points & miles in various ways. I’ve heard the argument they’re worth as much as you’re willing to pay in cash – logic that has always failed me. I use points because I won’t pay cash… right?

If I get a $10,000 Business Class flight for say, 50,000 miles – but I’m only willing to pay $1,000 in cash for the flight, does that mean the miles were worth the retail value of $10,000… or my “willing to pay” price of $1,000?

I used points to fly Lufthansa First Class… a product I’d NEVER pay cash for!

To me, they’re worth up to the cash cost because I typically travel for pleasure. Even though I value most points & miles at 2 cents each (at least!). Which in this case, 50,000 miles would be worth at least $1,000 but actually much more because of the retail price.

Knowing the selling price is the thrill of the deal. That’s the point of points in the first place (or First Class). And often, I use points & because only because of the retail value, despite what I’m “willing” to pay.

So I set my minimum value at 2 cents each because under that, you might as well use a 2% cashback card for the same (or better) result. I collect points for those times when I get outsized value – that’s what makes it worth it. And why I set the points value at – benchmark low – 2 cents each. But it all depends.

What’s your points value?

The fact that we swap points for award flights or hotel nights means we give them and get something back. That’s the definition of a currency. 

I’ll use miles if it means I get to look at artworks in museums – value goes up up up

And knowing the retail price is always the deciding factor on whether to pay cash or use points.

In the earlier example:

50,000 miles got a flight worth $10,000
I value 50,000 miles for $1,000
If the flight cost less than $1,000 (say $900), I’d just pay cash for it
So are 50,000 miles worth $900 to me (my willing to pay price) or $10,000 (the retail value of the flight)? Or what I value them for?

Do you need it?

The other factor is need-based.

Say this is the only seat on the flight but it’s also the last flight of the day and YOU NEED TO TAKE IT. On this day, you only have $500 to spend. So your “willing to pay price” is $500.

The miles let you access a flight selling for $10,000. On this day, did the miles save you $10,000? Or are they only worth $500 because it’s all you have in this case?

Or do you just want it?

Finally, the decision is pleasure-based.

Say you stumble across this flight and it’s to a cool place you’ve kinda always wanted to visit but wouldn’t necessarily plan a trip for. You hit up your buddy and say hey, award flights to XYZ are wide open for 50,000 miles – wanna take it? So you do. You’d never pay cash for it. The street price is still $10,000. Are your miles now worth nothing because it’s a trip you’d never use cash for?

What about when you impulsively take the low-hanging fruit?

This exact scenario has played out for me with recent visits to Mexico to stay at the Hyatt Ziva in Puerto Vallarta and the Hyatt Zilara in Cancun. Both times my criteria went something like:

Kinda wanna go somewhere easy, free, and warm
Don’t wanna pay for it, would rather stay home in that case
I’ll use miles if it brings my cost next to $0
But I won’t just use my miles unless the trip meets my 2 cents each criteria
Again, are my points worth 2 cents each, the value of the trip, or nothing because my willing to pay price is $0? 

I base it on trip value

For a trip like Cancun or Puerto Vallarta, if it was close to 2 cents each, I might not take the trip at all unless I was getting real, outsized value – something like 6 to 10 cents each.

I wouldn’t pay to fly from Toronto to Munich in Lufthansa and Swiss First Class. But heck yeah, I’d use miles for the experience

I did the same thing when I flew Lufthansa First Class to Munich for Oktoberfest. Did I NEED to take that trip? No. But I wanted to. Would I have booked it if the points value were low? No.

Because I mostly take trips for pleasure – not out of need – I base the worth of my points on the retail cost of the trip.

For the rare times I’ve NEEDED to take a flight for an emergency, I’m willing to charge an insane amount to a credit card if an award flight isn’t available. If an award flight IS available, I’ll book it. Did my points value fluctuate based on need instead of pleasure? Absolutely.

That’s why your points & miles – your currency – are worth what YOU want them to be worth.

Why 2 cents is the benchmark

Link: Cashback rewards cards

Simply because 2% cashback cards exist, without annual fees. If you choose to earn points, you should get at least that in value. If you don’t, you should’ve just gone with a 2% cashback card and saved yourself the hassle.

I’m all for it if it saves me over $300!

I love using 7,500 British Airways Avios points for $340 one-ways from Dallas, for example. I’d need 34,000 points with a 2% cashback card, which requires $17,000 in spending to earn.

At 1 point per $1 spent, I could also spend $7,500 and get the same flight. A stark difference. And a real example of the magic of points & miles. (In this case, each point is worth over 4 cents apiece.)

Exceptions to everything

Of course, there are promotions. Category bonuses. Sign-up offers. 3% cashback cards.

It’s easy for me to earn Citi ThankYou points. So there might be a time I redeem them for less-than-ideal value just because I don’t feel like paying cash. Yeah, I could pay cash. Or I could just use these points that are easy to replace.

Some cards have 2X, 3X, or 5X bonus categories. If you spend a lot in them, you earn more points. And you might decide to use them to save some cash – even for a cheap trip.

I used hotel points to visit my mom for Christmas. Did I get stellar value? Nope. Did I really care? Nope, cuz I got to see my mom

Some hotel points are worth much less than 2 cents each (Hilton and Radisson come to mind). So you might just burn ’em if they’re easy to earn.

There’s nothing wrong with that. But in that situation, you’ve made a snap judgement and set a lower value on your points currency. But if the trip makes you really happy, that’s the ultimate X factor, isn’t it?

Bottom line

Your points are a currency because you exchange them for things you want. But they’re unique because you get to decide their value. And that’s based on:

Your minimum benchmark (which IMO should be 2 cents each)
Whether you need to take the trip
How much pleasure you’ll get from the trip
How easily you can replace them