This post has been a long time coming. It’s been in draft for awhile, but I’ve been procrastinating. The other day, however, I saw on Twitter someone had used a major bloggers point valuations in their divorce proceedings. (Actually, it took me another two weeks to finish) I have tons of thoughts on that, but the takeaway is that it reminded me I need to write about why I mostly ignore point valuations these days.
Telling me that Starpoints are worth 2.2 cents per point or Ultimate Rewards points are worth 2.0 cents per point means nothing to me. I used to put a lot of stock in those valuations, but they no longer have much relevance to the way I use my points and miles.
Don’t get me wrong, I will always try to extract the maximum value from my points. I’m just not going to assign monetary value to them (aside from one penny per point). I’ve found that point valuations act as a crutch, not a benefit, in my game. Here’s why.
Point valuations mostly feel like marketing tools these days
When you’re starting out, other people’s point valuations can be useful because you have no idea what your miles are worth. They give you a general feel for what kind of “value” you are getting from your redemptions.
But after doing this for 5+ years, I have my own feel for how much points are worth. And that means point valuations mostly feel like marketing tools to me now.
“Starpoints are worth 2 cents per point so a 30,000 point sign up bonus is worth at least $600”. While that may be true in a sense, it’s actually not worth $600. But statements like that tempt me to equate the sign up bonus with actual money.
But as my esteemed colleague always says, the least valuable point is the one you don’t redeem. And if you never redeem those 30,000 Starpoints, they aren’t worth $600, they’re worth $0.
Even a veteran like me gets a bit starstruck when I see sign up bonus after sign up bonus – 100,000 point Sapphire Reserve is worth $1500! I have to consciously tell myself not to buy into the marketing hype and figure out the worth for myself.
Point valuations lead me to hoard
The tendency to give points monetary value can easily trick my mind into thinking of my points as cash. Starpoints 2 cents a piece? Then 20,000 Starpoints = $400! Even though rationally I know Starpoints are worth nothing until I redeem them, it causes me to put extra value on them.
That leads me to hoarding miles and points even when I know better. Starpoints are a great example – I tell myself they are so valuable that I never redeem them! They might as well be worth nothing.
While point valuations aren’t the only thing that cause me to hoard, they can be a contributing factor. Remember, your points should be working for you, if you’re not using them, they aren’t. And if thinking of a certain mileage currency as X points per mile causes you to not use them, is that valuation helping the cause?
Point valuations lead me to neglect cash back
Do you know what credit card rewards are as valuable as cash? Cash! Don’t overlook the psychological element of credit card rewards. You may not explicitly think this, but if you can earn 2% cashback or 1 Starpoint per dollar (which is “worth” 2 cents back), isn’t it possible you ignore the cashback because of the aspirational nature of the Starpoints? I know it happens to me.
Moreover, for some reason, spending points can feel better than spending cash. Maybe it’s because you don’t see the money in your bank account go down when you spend points. But if you’re neglecting cash back, which I did for years, you are in danger of missing the forest for the trees. Your points won’t be able to pay your rent if you lose your job – but cash will. Don’t let the “value” in points distract you from that.
Point valuations almost always take into account aspirational awards
Another reason I find point valuations faulty for the average consumer? They almost always take into account aspirational awards. I just looked up AAdvantage miles on a popular website – 1.5 cents per point.
To me, you can’t come up with such a generous valuation unless you are assuming that some of the miles will be used for business class flights. Otherwise you’re saying a roundtrip flight anywhere in the US is worth $375. That could be a good deal in some instances but obviously is a terrible deal in many others.
Well, if you have a family, or aren’t generating a ton of miles and points – should your point valuations really be that high? Aren’t aspirational awards “inflating” the value of those points? If you’re not in this to book aspirational awards regularly, I’d recommend being very careful about putting too much stock into the big sites point valuations.
Point valuations are based on unclear math
My final reason for personally ignoring other people’s point valuations? Fuzzy math! I am not sure I have ever seen anyone describe how they actually came to their numbers. Mileage Plan miles are worth 1.8 cents per mile! Why? How did you come up with that?
Why are Starpoints worth 2.2 cents per point? Just once I’d love to see how people come up with that. Is there an algorithm or are they just doing it by feels? Just another reason not to trust other people’s point valuations.
A better way to value miles and points
I should point out there is one big site whose point valuations I can get behind. They’re not perfect, but Frequent Miler uses the concept or “reasonable redemption values“. If you must use someone’s point valuations (and I do from time to time), then Frequent Miler isn’t a bad place to go. His point valuations tend to be more conservative, so that helps avoid a lot of the problems above. Still some fuzzy math, but it is an imperfect solution that I find worth using. Also worth checking out, Frequent Miler’s super simplified approach (every mile is worth 1.4 cents).
So, smart guy, if you don’t use point valuations, what do you do?
Well, first of all, I’m not that smart of a guy. I’m just trying to save money on my car insurance travel. So this is basically what I try to do: earn miles and points for less than 1 cent per point, redeem for more than 1 cent per point.
For example, I can buy Ultimate Rewards points expensively at 0.9 cents per point. With my Sapphire Reserve I can use them to buy flights at 1.5 cents per point. Win.
That’s pretty much all I do. I used to try to track exactly how much I paid for every point and how much value I got for every point but that got two cumbersome. I know some people have the time for that, and all the more power to them! This is just works for me.
Final Thoughts
Point valuations have their place, especially for beginners. It gives you an idea of what your points are worth. I’m not saying ignore them completely, but take a thoughtful look at who you’re listening to. What really matters is that you are getting the maximum value out of your points and that you’re actually redeeming them. If you find point valuations are distracting you from that goal, throw em out! I haven’t really missed them, and you probably won’t either.
Great post Joe. I’ve moved toward a “binning” approach. E.g. UR points are easiest earned (for me), so I’ll likely go through them first, if I am going to use a transferrable currency. SPG points, I can never have enough of, which leads to hoarding, but, if I am in a pinch, I usually have enough to use; but it keeps me from doing speculative things like this SPG-VX-AS being talked about.
Joe, great post. I commented on FM’s latest point valuation thread too… once you’ve been at this game a while it becomes straightforward to assign a value (or at least a range) to your points based on how you yourself tend to redeem them.
Everyone should be encouraged to do their own math!
I use my numbers to decide which card I want to use for a given deal, and whether or not its worthwhile to pursue offers like JetBlue’s VX points match. If I have no experience with a program, then FM’s numbers can provide a starting point.
I prefer to MS than churn, so I also assign a value to my time and add it to the cost side of the equation – something quite a few people I’ve encountered don’t bother doing.
Agree with this. The pimps almost always inflate points and miles values to hype those credit cards they love to shill. 2.2cpp for SPG? I find I get less than 2cpp on my redemptions. But conversely I can get multiples of the usual 0.4cpp valuation most people (and Hilton itself) give for Hhonors points when getting suite upgrades.
I typically assume most airline points are worth about 1.5c (except shit Skymiles that are worth about 1c). Hotel points are more variable. Check out Seth’s Hotel Hustle site. He uses actual room cost data and computes average/median high/low points value – which seems the the most reasonable way of valuing points.
And I MS most of my points as well –
A couple of Sundays ago, Daughter and Grandson were stuck at DTW after a long flight from CDG. I booked them into the airport Westin for 10K points. OMG! The room cost $369 at 10PM Detroit time, so that must mean that the points were worth 3.69 cents a piece. Right? Wrong.
At that particular hotel, at that particular time, d/t the sudden rush for rooms from delayed planes, the price of the room went up, and the price in points did not. Two hours earlier, I could have booked it through hotels.com for $179, making those points worth only 1.79 cents each. Those rooms were gone, all that were left were those through SPG itself.
Points are worth, to me, whatever value I get from them. Which can change in two hours.
I had ~15cents redemptions value for AA awards in ECONOMY! But I would have NEVER paid that out of my pocket unless I was billionaire Donald Duck!
We always wonder how to assess the points because sometimes it makes sense to purchase Hotel/Airline tickets cheap vs. using points/miles outright.
So, I look for a “resonable” guess of value that I am willing to assess based on my previous Economy class redemption during “high” season. If I find cheaper tickets/rooms using cash, I use cash. Otherwise use the points..
That’s a very long way to say that cash is king.
And why does everyone use a 2% card as a benchmark when everyone and his dog can get at least a 3% card?
What card gives 3% cashback?
I am from MN, but I have family in New Zealand, and am now living in NZ. I have been tracking cost of flying RT Mpls to Wellington for years and I know what a great price is, average, and too expensive (for me). I use the maximim price I’m willing to pay for this ticket (US$1600) and divide by the 80,000 miles American charges, to come up with a value of .02/mile (for me). I’d rather pay cash on anything less than .015/mile and save my miles for NZ/MN flights. So, .018/mile not so far off (for me). But obviously if I were focusing on flying from Mpls to Chicago, it’s not worth that much. I think it’s good for each person to evaluate what a mile is with to them, and then do like you say and use them! Or also good to compare before booking a specific flight, what’s it cost in miles? What’s it cost in dollars? I like to make sure it makes sense and that helps me evaluate!
I like what you say re earn for under .01 and redeem at over .01. That way you know you are winning! Good rule of thumb that helps simplify!