Why Young Graduates Should select Air Miles Over Cashback As Their First Credit Card?

For those of you that do not know, DollarsAndSense is currently participating in a 'friendly' Airmiles vs Cashback competition organised by SingSaver, where different financial websites select which may be the preferred kind of credit cards. DollarsAndSense combined with the MileLion are on Team Airmiles.

We choose air miles over cashback since the maths clearly show that the miles card would deliver better 'cash spent to benefit received' value.

A recent discussion with a friend who just started working after graduating from university prompted us to write this short article.

After explaining and successfully convincing our friend to try to get an airmiles card, rather than a cashback card, we wanted to write this short article so that we can explain this to young graduates around the rationale on why most teenagers are better off choosing an air miles card over a cashback card.

You can thank us when you are travelling in your complimentary Singapore Airlines (SQ) ticket for your year-end holiday, or even your company Class SQ flight during your honeymoon, while your (stubborn) friend either remain in Singapore or spent a few thousand dollars, unnecessarily, on flights.

We will be let's assume that you'll be able to satisfy the minimum annual income requirement of $30,000. If you don't, this discussion doesn't apply anyway, because you wouldn't be able to make an application for cashback cards either.

Charging For your Air Miles Credit Card Generally Gives You Better Returns

Let's assume you charge an average of $1,000 monthly for your credit card. You'd spend a total of $12,000 per year.

If you use a basic air miles charge card such as the American Express Singapore Airlines KrisFlyer Credit Card, which provides you 1.1 Miles for each $1 spent, you would earn as many as 26,400 miles over a 2-year period.

This is not all. Should you include in the traditional welcome bonus of 5,000 miles, and the additional 7,500 bonus miles that you received if you spend $3,000 inside the first 3 months, after which another additional 7,500 bonus miles if you spend another $3,000 from 4thto 6thmonth, you would earn an extra 20,000 bonus miles.

In total, you will earn 46,400 miles.

What Does 46,400 Miles Enable you to get?

Option 1: Two pairs of round-trip SQ economy flights to Bali – 30,000 Miles

Option 2: One round-trip economy SQ flight to Hong Kong or Taiwan – 30,000 Miles

Option 3: One round-trip economy SQ flight to Maldives/Sri Lanka – 37,000 Miles or one-way Business Class SQ flight to Maldives/Sri Lanka – 39,000 Miles

Besides what we should have stated above, there are obviously various types of combinations that you can consider depending on how much miles you're prepared to redeem. Check out Singapore Airlines Award Chart here.

If your plan's to visit once every 2-3 years, we would definitely suggest charging your monthly expenses to an air miles card as frequently as possible, since you can easily earn enough miles to redeem round-trip flights to many popular holiday destinations in Asia.

For many young working adults who just graduated, earning miles for any free flight is a rather achievable task. It's not necessary to be considered a big spender or a frequent holiday goer to enjoy these complimentary flights. All that you should do is by using the right credit cards.

What Should you Used A Cashback Card Instead?

Using a cashback card isn't just bad. It is simply painfully uninspiring. Let's assume you have a 1.5% cashback on your spending. Using the same example, you would have spent $24,000 over 24 months providing you with a total cashback of $360.

Not bad, and surely nothing close in terms of value compared to having a free round-trip flight to Hong Kong, Taiwan or Maldives.

An Air Miles Card Doesn't Make You Spend Anymore Than the usual Cashback Card

Some ill-advised cashback fanatics declare that miles card could make you spend more. That's simply ridiculous.

A cashback card provides cash back based on the same exact principle that a miles card does. Regardless of whether you are using a miles card or a cashback card, you have to invest in your credit card in order to earn the benefits.

The main reason why some cashback fanatics have this (incorrect) perception is the fact that most cashback cards provide cashback on a monthly basis.

For example, basically spent $1,000 per month, I can earn a cashback of $15 every month (according to 1.5% cashback rebate). If I am a cashback fanatic, I may think I am saving $15 every month. Conversely, if I am utilizing an air miles card, I possibly could earn 1,100 miles which don't give me any savings-yet.

However, when I travel, I will be in a position to claim on these air miles which i've in the bank over the past Two to three years. This means I could easily save at least $400 to $500 if I fly on economy, as compared to my cashback friend who will now need to invest in his flight.

Both air miles cards and cashback cards do help you to save, using the key difference being that cashback cards provide short-term savings while the savings for air miles cards are just realised when you redeem for any flight, which will not be something which you do every day.

Cashback fanatic who think cashback cards would be the only option for saving money is just taking a look at this topic using their own short-term perspective. The only time an air miles card doesn't make any sense is that if you've got no intention to visit. If this describes you, then you are better off sticking to a cashback card.

Some cashback fanatics could also reason that they are able to earn to the next stage of cashback. Do your favour. Like a young working adult, treat these claims with a pinch of salt.

The simple reason is the fact that to be able to efficiently earn these higher cashback rates, you must first meet a minimum spend every month. The easiest way to same with to have recurring bills each month. Many cashback cards also give you a higher rebate if you clock in spending in certain categories such as telecommunication bill, petrol, grocery shopping as well as utilities.

This is great-if you're like me – a dad who must purchase milk powder and diapers, home utility bill, telecommunication bill for myself, my spouse, my parents petrol for your loved ones car, and also the never-ending listing of groceries required.

So, don't begrudge the auntie who's religiously using her trusty POSB Everyday Card at Sheng Siong and Watson to pay for her bill. She is probably using her cards wisely based on the bills she has to cover every month.

But if you don't plan to step up and purchase all the household expenditure, which we are sure is definitely an offer your parents wouldn't turn down; most fresh graduates will find the advantages they get from using cashback cards rather unattractive.

Air Miles Cards Are Unbeatable, Specifically if you Have Big-Ticket Expenses

If you are planning for the wedding, going on a holiday, doing home furnishing for the new house or perhaps waiting to welcome an infant for your family, you are likely to find yourself spending quite a lot of cash within a short period of time.

For these occasions, an air miles card is fairly unbeatable. Considering the following two situations.

Option A: Using Cashback

You as well as your spouse are intending for the wedding. You expect to invest a minimum of $15,000 over the next 3 months.

If the two of you use a good cashback card, like the UOB One Card, and split your debts such that you spend $2,000 per month each, for three months consecutively (min 5 purchases), you will be able to earn a quarterly rebate of $300 per card, or $600 in total. Not bad.

Option B: Using Air Miles

However, if the two of you obtain a Citi Premier Miles card instead, and split your debts such that you're charged at least $7,500 each inside the first A few months, you will be able to earn 30,000 bonus miles per card.

Add that to the 1.2 miles per S$1 spent and you would have accumulated a minimum of 39,000 miles per card, or 78,000 miles in total.

This is sufficient to redeem a pair of round-trip business tickets to Perth or Maldives for the honeymoon. 78,000 miles can also be enough for 2 pairs of round-trip SQ economy tickets to Maldives for your honeymoon – a thing that we pretty confident $600 won't be able to get you.

Financial blogger Budget Babe, who is probably Singapore's biggest cashback advocator, even admitted (reluctantly) inside a Facebook Post there are certain occasions where you are should definitely use an Air Miles card, rather than a cashback card.

As a working adult, planning for a wedding, buying furniture for your new home, opting for a yearly end-of-year holiday trip, purchasing a new laptop or even delivering a baby are all big-ticket items which you are likely to make, at some point in time or another. So be smart and charge your expenses to an air miles card so that you can enjoy savings in the future whenever you travel.