A new report by the Electronic Payments Coalition highlights the importance of credit card rewards for lower-income households in the United States. 

According to the study, many low-to-moderate-income (LMI) households rely on cashback rewards from credit cards to supplement daily expenses, particularly during periods of high inflation. Despite common misconceptions that credit card rewards primarily benefit the wealthy, the research shows that rewards card ownership has surged among lower-income groups, with nearly 70% of LMI cardholders now utilizing reward cards. Research was based on data collected from EPC members representing over half of the credit card market.

“Americans of all incomes take advantage of credit card reward programs but the most financially vulnerable households depend on cashback rewards to help make ends meet,” EPC Executive Chairman Richard Hunt said in the report. “Saying credit card reward programs only help the rich or are just about getting lounge access at the airport is nothing more than willingly ignoring the full picture. Hardworking Americans rely on their rewards to help make ends meet and manage their daily finances. For many, these credit card rewards served as a lifeline during the record inflation of the last few years.” 

Since 2020, the ownership of rewards cards has grown fastest among LMI individuals, indicating that these programs are popular among lower-income households. However, all cardholders, regardless of income, receive a boost to their income from rewards. Many individuals save up rewards over time to supplement holiday and back-to-school shopping, with rewards savings accounting for a significant portion of planned holiday purchases, according to the report.

Contrary to the belief that lower-income individuals subsidize rewards for wealthier consumers, known as the “Reverse Robin Hood” effect, redemption rates are similar across income groups. This suggests that each income segment is utilizing their rewards at comparable levels, the report also found.

Findings show that rewards have a disproportionately larger financial impact on LMI cardholders compared to higher-income individuals. Removing or reducing reward programs would significantly affect the finances of lower-income households.

According to the report, credit card rewards can help offset price increases, but cash and debit card users will miss out on potential savings from cashback rewards. Despite arguments suggesting merchants pass on card acceptance costs to consumers, the report emphasizes the benefits of credit card acceptance, leading to increased purchases and a net benefit of 5-6.4% to merchants. 

There is little justification for retailers to impose surcharges on credit card users to recoup card acceptance costs, as cardholders bear the additional cost alone. 

Large retailers have not passed on savings from debit card interchange reductions to customers. Also, large retailers have typically not passed savings from debit card interchange reductions to their customers.