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Who Pays For Credit Card Rewards?

Credit-card rewards — cash back, frequent-flier miles, etc. — benefit the wealthy at the expense of the poor, according to a new study by economists at the Boston Fed.

These being economists, they even put some precise numbers on the finding:

On average, and after accounting for rewards paid to households by banks, the lowest-income household ($20,000 or less annually) pays $23 and the highest-income household ($150,000 or more annually) receives $756 every year.

Here's the authors' reasoning.

Stores and other businesses that accept credit cards have to pay a bank fee every time a customer pays with a card. Stores typically raise prices for all customers (including those who pay with cash) to pass these fees onto consumers.

Credit cards are far more common among people who live in high-income households.

Among people who have credit cards, people in high-income households spend more, and they're more likely to have cards that offer rewards.

So, on balance, what you get is everybody paying higher prices (to cover the banks' credit card fees), and people in high-income families getting the rewards.

To see the raw data, along with the math the authors did to come up with their findings, read the paper.