The history and present of the au pair scam

On this week’s episode of The Manifesto I had a long conversation with a reader who has a decade or so of experience legally bringing in au pairs from abroad to care for his children (who sound delightful, although thanks to the magic of editing software you don’t get to hear their cheerful babble in the background of the episode).

I’ll let the episode stand on its own with respect to the mechanics and economics of hiring au pairs, which we cover in great depth and detail, but throughout the episode I kept coming back to the same question: how is this legal?

After all, every day the newspapers are full of stories about shortages of foreign workers, leaving meat unpacked, fruit unpicked, and lawns unmown. But there’s one weird trick to bring in an unlimited number of workers to care for the children of our economic elite?

There sure is.

The origins of the scam

The year is 1986. Ronald Reagan has swept to re-election, Mike Ditka’s Chicago Bears have crushed the New England Patriots in Superbowl XX, and just a few years earlier women’s formal labor force participation edged past 50% for the first time (male labor force participation was 76% the same year). It would continue to soar until topping out above 60% in the final years of the Clinton boom.

Two-earner households provided desperately-needed labor to firms anxious to expand as interest rates fell from their Volcker highs (for the purposes of this story you have to understand that a 7% risk-free interest rate was considered low in 1986). Just a few years later, Blondie Bumstead would enter the workforce after 58 years as a homemaker.

Of course I’m being a bit droll, but the point of this frame story is to express a genuine change in material circumstances experienced by an increasing number of Americans. Adding a second wage-earner to the household made up in part for falling unionization rates and the end of the “family wage” earned by the (stereotypically) male “breadwinner.”

This tidy solution came with its own complications. As Baumol taught us, rising productivity and incomes in one area of the economy increases the wages that have to be paid in sectors with stagnant or falling productivity as long as workers are free to move between low-productivity and high-productivity sectors.

But what if, you ask, for some reason workers weren’t free to move between jobs or sectors?

Congratulations, you just invented the au pair scam. In 1986, the United States Information Agency approved the creation of a “cultural exchange” program to bring in an initial 1,000 childcare workers on non-immigrant J-1 visas. The initial program, with its tight cap on entrants and limited geographical scope, cost families $149 per week, of which $100 went to the au pair, which is both insultingly and truthfully referred to as “pocket money.”

I suggest considering these figures in 3 distinct ways:

• Using the Department of Health and Human Services guideline that childcare is considered “affordable” when it costs less than 7% of household income (no one bothers to specify whether this is gross or after-tax income), $7,748 would be “affordable” to a family making $110,685 per year in 1986 (277,000 2021 dollars).

• $5,200 in annual income is roughly 75% of the 1986 minimum wage of $3.35 per hour, calculated on a 40-hour, 52-week basis (au pairs are in fact expected to work slightly longer hours than this).

• But both of these figures need to be adjusted by an essential consideration: au pairs receive room and board, which both increases the cost for host families, primarily by requiring them to own or rent slightly more “house” than they might otherwise (e.g. 3 bedrooms instead of 2), and decreases the out-of-pocket expenses of the au pairs.

Everyone involved knew exactly what they were doing

It’s difficult, living through an era of bipartisan political amateurism, to examine periods of American history when politicians knew what they were doing. If the au pair scam were invented today, you’d say it was just an unfortunate accident, some sloppy wording in a hastily-written statute that was passed through a special budget procedure in the middle of the night.

Not so, as these hilariously prescient quotes show.

In February, 1986:

Some experts said the plan was likely to cause controversy. ''This could be a terrific program for the students,'' said Eugene Goldstein, a Manhattan lawyer who takes many immigration cases. ''But it could sound like a highly imaginative subterfuge, in bringing someone to work as a baby sitter under an educational program.''

He added that it may be criticized as a way to import ''cheap labor under the guise of an educational exchange'' or be faulted by those ''who don't think it complies with the spirit or purpose of the exchange visit program.''

In June, the first au pairs arrived:

Yesterday, some of the au pairs met their host families. ''We vowed we'd never have an illegal au pair, even though it's so difficult to find child care in our area,'' said Susan Garthwaite of Stamford, Conn. She, her husband, Richard, and their children, Craig and Dina, were introduced to their au pair, Nicola Adams, 22, from Hampshire, England.

The next year:

''You can't get Americans for $150 a week,'' said Betty Richardson, proprietor of Betty's Nannies, a Houston-based recruitment agency that places au pairs nationwide. ''If they took all the unauthorized nannies away we'd all come to a screeching halt.''

…

Many of the au pair agencies and parents are resentful over a special new program under which 3,100 foreign au pairs are legally brought to this country each year by a private company, the American Institute for Foreign Study, under a cultural exchange program sponsored by the United States Information Agency and the Experiment in International Living.

The au pair scam today

If you were paying attention, you might have noticed something jarring in the above quotes. The au pair J-1 visa was introduced in 1986 with a hard cap of 1,000 entrants, but by May of 1987, less than a year later, there were 3,100 being admitted “each year?”

With all the clues in hand, you already see where this is going: in 2019 (the fairest “pre-pandemic” comparison year), 21,551 au pairs were admitted on J-1 visas!

What’s remarkable is that if the working conditions of these au pairs has changed in the last 35 years, it’s only been for the worse. The $100 the first au pairs received weekly in 1986 is worth about $250 on a CPI-adjusted basis today, while au pairs today receive just $196 in 2021 dollars! This despite the increased share of women’s labor force participation and corresponding demand for childcare, and the galloping productivity gains of the intervening 1990’s.

The wealthy got their special pleading; now what?

If you’re thinking of commenting that I’m being too harsh on the au pair scam, and that it’s “all perfectly legal,” save your keystrokes. I know it’s perfectly legal; I’m the one who did the research.

The point is to invite you to consider the consequences when the economic elite are allowed to buy their way out of the constraints everyone else in society faces. Not enough childcare centers? Hire an in-home nanny. Not enough American nannies? Bring in a foreigner. Not enough visas? Create a special visa program just for in-home nannies. This is the logic of a class that simply considers itself removed from the obligation to participate in the shared obligations of society.

Of course it’s all perfectly legal. They wrote the laws. What about the rest of us?

Can you win playing by the rules?

Last month I spent a lovely Saturday afternoon in the Minneapolis-Saint Paul International Airport conference center for the long, long, long-delayed Milenomics Second Planned (MSP, get it?) Meetup. Sam and Robert, the brainiacs over there, did a lovely job and I got to kick back and relax all day with a few dozen members of their Patreon community, and see some old friends from all around the country for the first time in much too long.

Over the years I’ve attended quite a few gatherings like this (and hosted a fair share of my own), and my overwhelming impression is simply how different they all are. All the way back in 2014 I covered the gauzy Frequent Traveler University event in Seattle and came away equal parts bored and annoyed. When Saverocity was more active, I found their Phoenix and Charlotte events were well-run and great opportunities to meet more like-minded members of the community. I haven’t made it to the Chicago Seminars or Ann Arbor Art Fair meetups, but have heard rave reviews of them from their own diehard fans.

The point of all this is not to recommend or even criticize one sliver of the travel hacking community over another, but rather to point out that different slivers are different! If you don’t fit in in the first group you join, that doesn’t mean everybody else in the community is a boring loser and you’re the only one who really gets it. It means you had bad luck — that group wasn’t right for you, but it might be perfect for people who aren’t like you.

What I found most interesting about the Milenomics meetup was not how similar everyone was, but how different they were, and I’ve been turning over how to express what, if anything, passionate travel hackers have in common.

The rules describe everything that has already been thought of

Like lots of kids, I grew up playing the board game “Monopoly,” with its iconic instructions:

“GO TO JAIL.
“Go Directly to Jail
”DO NOT PASS GO
“DO NOT COLLECT $200.”

This is a wonderful manifestation of the general principle that you can only write rules around situations that have already occurred to you. Monopoly is a game of randomized clockwise movement around a rectangular board. If the Jail square is between your token and the GO square, there’s no question that you have to move your token there without passing GO. But if the GO square is between your token and Jail, what are you to do? You are to go “directly” to Jail, without passing GO, violating the game’s main rule of one-directional, clockwise movement.

Playing by, around, and against the rules

The question, then, is do the rules describe every possible situation? Of course not. A few years back IHG Rewards ran a promotion that allowed you to enter into a sweepstakes up to 94 times by mailing hand-printed pieces of paper to some P.O. Box in Kalamazoo. But the rules didn’t say who had to hand-print the pieces of paper, so there was nothing in the rules against enlisting some kids with neat penmanship to fill out your 94 entries for you.

And this, I think, constitutes one of the many divides in the travel hacking community:

• Should you play by the rules, and only do the things explicitly laid out by the companies we interact with;

• Should you play around the rules, identifying the “Air Bud” holes where some action is neither explicitly permitted nor explicitly prohibited;

• Or should you break the rules, counting on sloppy implementation or enforcement?

Most people do some of each, and that goes beyond the specific domain of travel hacking. Take the case of vaccine mandates:

• the overwhelming majority of people subject to vaccine mandates simply comply and receive the mandated vaccines;

• some people observe the possibility of “religious exemptions” or “conscientious objection” to vaccine mandates and fabricate those exemptions or objections;

• and some people go further and fabricate the documents themselves in order to violate vaccination requirements.

The scarcest resource is not time, but focus and attention

One of the strangest arguments in the travel hacking community is about the “value” of your “time.” It’s certainly true that hourly workers are compensated for their time on an hourly basis, and that a small subset of salaried workers are paid overtime when they work more than 40 hours per week, but my extremely literal viewpoint is that when you’re not being paid for your time, it’s yours. It’s free, God-given, to do with what you please.

The manufactured spending I don’t do online, I do on foot. In other words, I go for a walk. In every other context, “going for a walk” is treated as a leisure activity. In my case, I also make money doing it. But the time is free: I exchange pleasantries with my neighbors, breathe fresh air, and enjoy all the benefits of daily light cardiovascular exercise.

Where I see the biggest divide between affiliate bloggers and travel hackers is in how seriously they take the shortage of focus and attention, not time. Participating in a buyers group doesn’t take much time at all, compared to going for a long walk. But keeping track of shipments, deliveries, and payments requires focus and attention that could be used elsewhere, even if it consumes just a minute or two per day. This is not a criticism: if you find participating in buyers groups fun, then that’s what you should do. But don’t make the mistake of thinking the resource you’re expending is your time.

If you want to play by the rules you have to stay even more focused

The error I see affiliate bloggers promoting most consistently is that it’s worth playing by the rules (the only rules affiliate bloggers are allowed to tell you about) and getting dragged deeper and deeper into the travel hacking community. To me, that’s an either/or proposition.

A perfectly reasonable way to go through life is to sign up for a Chase Sapphire Preferred card, put all your purchases on it, and each month transfer your entire balance of Ultimate Rewards points to World of Hyatt. Then whenever you need a hotel stay, see if there’s Hyatt award availability. If there is, book the Hyatt. If not, pay cash. The same logic applies to an American Express Gold card with transfers to Delta.

Likewise, I’ve happily written about a basic credit card strategy consisting exclusively of cards with annual companion tickets (Alaska and Delta) and hotel nights (Hilton and Hyatt).

But if that’s your strategy then you need to log off, not read any blogs at all, not follow any travel hackers on Twitter, and not listen to any travel hacking podcasts. Not because they’re a waste of time, but because they’re a waste of focus and attention.

The reason to get engaged in the community is to find out what rules can be bent and broken

The rewards of getting involved in the travel hacking community can be enormous, but they’re not free. Learning how to search for partner award availability across multiple airline alliances is a huge undertaking. Tracking signup bonuses and transfer partners isn’t particularly time-consuming, but it does consume focus and attention that you’re otherwise free to expend elsewhere.

Fortunately, travel hacking has the same safety valve built into it that all hobbies do: if you don’t find it fun, you don’t have to do it! Whenever my friends or family approach me to ask how to get started I tell them the same thing: do one thing, anything, and see if you enjoy it. See if it captures your imagination. See if you want to do more, faster, more aggressively. And the simple fact is, no one has ever taken me up on it, because the overwhelming majority of people find it mind-bendingly boring.

The most valuable travel hacking resources today

Reader crispy left a very kind comment on one of my posts the other day and asked a very thought-provoking question, and instead of replying in the comments there I thought I’d break out my answer here. The reader’s question was:

“With so many blogs out there that don't benefit their readers by pushing certain credit cards, do you have some blogs that you actually recommend? Any other underrated bloggers who you think actually provide value in the frequent flyer game?”

I’ve answered this question a couple times in the past, and my answer is constantly changing: some resources get better, some get worse, new ones pop up, and old ones go away (pour one out for the Saverocity Observation Deck).

In that way, the travel hacking community is a lot like travel hacking itself. There’s no reason to believe the amazing technique that works today (3 Flexpoints per dollar spent on Kiva loans) or loyalty program sweet spot (Boston to Dublin using Avios) will continue to work tomorrow. We learn, experiment, and share what we know so as many people as possible can take advantage before the window inevitably closes.

Paid communities and resources

These are options that someone new to travel hacking shouldn’t consider. Paid communities are primarily for folks who know what they’re doing and want or need to share new information in real time. If you’re just getting started there are plenty of free resources to learn the ropes, and you’ll just waste people’s time asking questions with easy answers. For example, the occasional Newsletters I send to paying subscribers are mostly the results of my own esoteric experimentation, and each Newsletter is only useful to a tiny minority of subscribers.

• Straight to the Points. Spencer Howard has a newsletter where he sends out high-value award redemptions and cheap fares to paying subscribers as he finds them. A limited free version is sent out a few days later, so the conceit is his paying members have first dibs on the seats and fares.

• Miles Per Day. An absolute legend in the community, Vinh runs a private Slack channel that I think operates on something of a “one-in-one-out” basis: somebody has to leave the group before he’ll allow another person in. I believe it’s currently closed to new members, but it’s worth following Vinh on Twitter anyway as he periodically announces new spaces are available.

• Milenomics. The only paid resource I personally rely on is the Milenomics Podcast Network, which covers a huge range of topics and hosts an extremely active and valuable Slack channel. I’m a paid contributor to the network and I am extremely sensitive to the fact that there are no benign conflicts of interest so I won’t say anything except that I happily pay for my subscription and they don’t even give me a discount.

“Static” websites

These are my go-to destinations when I just need to know a single fact. They can be slightly out-of-date, but they’re still the best resources I know of.

• DepositAccounts.com. When you have extra cash, need somewhere to put it, and want to earn as much interest as possible, this is the best resource I’ve found. It’s a bit difficult to navigate and tries to steer you towards their paid advertisers, but the information itself is accessible and pretty reliable.

• Frequent Miler’s “Best Offers” page. While the blog itself seems to have been taken over by search engine-driven dynamics and “pivoted to video,” the best credit card offers page has remained extremely useful, and is always the first place I visit to check how a sign-up bonus offer compares to recent offers.

Twitter feeds

It’s a cliche that all the big blogs dump out identical content whenever there’s the slightest amount of travel-related news, or even a travel angle on unrelated news, but Twitter is still where I find out a lot of information first, and there are a few Twitter feeds that do a great job getting me the exact information I need when I need it.

• Danny the Deal Guru. Danny (no idea if that’s his real name) has somehow dialed in to posting the precise deals that appeal to me, personally, and deals that would appeal to me if I were you. I don’t take advantage of them all (I enjoyed Burger King growing up; now, not so much), but he doesn’t miss.

• Doctor of Credit. I follow Doctor of Credit and find it useful to keep track of the atmosphere, but the thing to know in advance is that it’s a lot, and it’s totally indiscriminate. Discount codes, coupon codes, signup bonuses, promotional gimmicks, all thrown together without rhyme or reason.

Conclusion

There are two ways to look at this list. On the one hand, you could see it as a kind of flattening in the general travel hacking space: the biggest public blogs have hired mechanical Turks to pump out near-identical content of no use to anyone, while the information people actually want and need has increasingly vanished behind paywalls.

On the other hand, there’s been a florescence of resources for individual communities. If “your thing” is Disney, then you have more resources than ever to choose from, with small blogs, forums, and podcasts with different voices and values sharing their own techniques to save money or get more value for it. For all I know this may be the inevitable consequence of a community growing larger than it can easily accommodate, and generalists becoming specialists who serve smaller and smaller slices of the group.

Sound off in the comments if you have any more recommendations for crispy.

What the Times got right and wrong about travel hacking

The New York Times Magazine had an article in yesterday’s paper issue (although, confusingly, it’s been available online since last week) about travel hacking. I spoke to the author for about an hour all the way back in April, 2020, when the article was still taking shape, which was its own interesting experience. I tried to put the writer on the right track, which comes across a little bit in the piece (“Pretty much every player at this level disliked Brian Kelly and The Points Guy for one reason or another”), and I truly hope my input made the piece a little less cringe-worthy than it would otherwise have been.

But, there’s still plenty to cringe about.

What the Times got right

Besides “everybody hates Brian Kelly,” the article does capture a few important insights.

First, rewards are paid for by people who don’t collect or redeem them, and this is mechanically true of all rewards of all kinds. When the grocery store offers $20 in free goods each time you buy a $5.95 gift card (whether you use a credit card or pay with cash), the money has to come from somewhere. You can split it up any way you like: some of it as a kickback from the gift card issuer, some of it from the payment processor, some of it from the shareholders, and some of it from higher prices, but every penny has to come from somewhere.

Second, I appreciate that the author gave Jimmy Carter the credit he deserves for airline deregulation. Carter has been maligned for decades because he didn’t get along very well with congressional Democrats and he once gave a speech that made your parents feel bad, but he was a great president so I always like to see him recognized, whether it’s for his achievements in the field of aviation, or for the legalization and proliferation of microbreweries.

What the Times got wrong

The sad thing about the Times article is that it misses the point I tried to make to the author in our brief conversation: Brian Kelly doesn’t matter. He, Gary Leff, Ben Schlappig, and whoever else you want to throw in may be revolting little gremlins, but that’s all they are. They are not members, in any meaningful way, of any community I’m a part of. And that’s the mistake the Times author keeps making: swapping in and out anecdotes about clowns like them, Randy Petersen, or Stefan Krasowski, with the experiences of actual travel hackers.

These are two separate stories. If you want to write an expose about the credit card sales grift, then you need some information about the credit card sales grift (the author quotes Kelly simply saying “I don’t like talking about numbers.” Well, what are we talking about then?). If you want to write about travel hacking, then you can write about travel hacking, if you can find anyone willing to talk to you about it. The author tried something that couldn’t be done: turning credit card salesmen themselves into avatars of travel hacking.

And that’s ultimately the most frustrating thing about the article. It could have been either of two kinds of service journalism:

1. tell people how to watch out for online credit card grifters;

2. or tell people how to maximize the value of loyalty programs.

Either project would have been perfectly worthy. Indeed, I make my living helping people do both! But instead it settled into the one place that does no service to anyone: claiming that online credit card grifters are, in fact, helping people maximize the value of loyalty programs. The one thing they are absolutely, positively, resolutely, not doing!

Conclusion

There are lots of sloppy little errors in the piece, and like everything in this world, it’s hard to tell how much people were deliberately misleading an outsider and how much the author simply didn’t understand what they were being told.

For example, the Times wrote that you could manufacture spend by “driving between Walmart locations to buy money orders at a discount” — if anyone knows how to buy money orders at a discount, let me know!

Likewise it’s certainly possible to “resell your points in secret online markets,” but if you’re earning that many points, why would you need to resell them? Just earn more valuable points instead!

Unlike some folks in the community, I don’t have any particular compulsion to keep travel hacking “secret,” for the simple reason that there’s no need to. Most people don’t care, and don’t want to care. The very small number of things that I think widespread publicity will end, I write about in my Subscribers-only Newsletters, but the main thing keeping travel hacking not just alive, but thriving, isn’t secrecy. Rather, it’s the complete lack of interest most people have in travel hacking.

Good for them, and good for us.

How I'm positioned going into 2021

With the end of the year in sight and the possibility of travel again appearing on the horizon, I thought it would be unusually desirous to take stock of my current portfolio of rewards currencies, identify any strengths and shortcomings, and apply myself with renewed vigor as needed.

Bank Programs

The three bank-sponsored programs I participate in are Chase Ultimate Rewards, US Bank Flexperks, and Barclay’s Arrival+, and right now my Chase balance is the only one I feel good about. With four Freedom cards I can earn up to 120,000 Ultimate Rewards points per year depending on how the bonus categories fall, and my Ink Plus lets me earn 250,000 more points at office supply stores, preferably during negative cost promotions like the one currently running at Office Depot and OfficeMax.

US Bank Flexpoints are worth 1.5 cents each when redeemed through the US Bank travel portal or through Real-Time Rewards, which allows you to redeem points for their full value against purchases at many merchant categories. That means the Flexperks Travel Rewards card earns the equivalent of 3% cash back at grocery stores, and it’s typically one of my go-to cards for grocery store manufactured spend. However, times haven’t been typical, and it fell out of my rotation in favor of cards offering temporary benefits during the pandemic, like my Chase Hyatt card and American Express Delta Platinum card, which is earning the equivalent of 1.5 SkyMiles per dollar (at $1,000 thresholds), with bonus MQM’s along for the ride. I wouldn’t normally consider buying SkyMiles for 2 cents each, but the bonus MQM’s (and recent news that all 2020 MQM will roll over to 2021) and the time-limited nature of the deals ended up convincing me to put a fair amount of spend on the card this year.

Finally, I still have a Barclays Arrival+ card, which used to function as a decent 2%+ cash back card with a chip-and-PIN functionality for use abroad and a trip delay benefit, which made it my go-to card when booking paid flights. Effective November 1, 2019, the trip delay benefit was removed, so I can’t recommend anyone pay an annual fee on the card anymore, as long as they have access to 2% or higher cash back on unbonused spend with another card (Fidelity Rewards or Citi Double Cash, for example).

Airline Programs

From one perspective, my airline mile balances are even more dismal than my bank balances. My highest balance is with Delta, with about 40,000 miles, and my lowest with Alaska, at around 13,000, with American and United in between. In hindsight this ended up being the ideal way to go into the pandemic, since the balances that ended up stranded and unredeemable since March were so minuscule. Looking forward, of course, I’d ideally like to get at least some of those balances up in order to opportunistically redeem them in the summer and fall.

My United Mileage Plus balance is the easiest to address since it’s an Ultimate Rewards transfer partner, so my strategy for earning more Ultimate Rewards points works as a Mileage Plus strategy as well.

In 2021 I’ll have two Delta companion certificates: my 2020 companion certificate with its extended expiration date of December 31, 2021, and the new 2021 certificate I’ll receive in May. Those should cover all my domestic Delta travel in 2021.

With my family on the West Coast, my partner’s family easily accessible on American Airlines, and Alaska joining oneworld on March 31, 2021, I expect Mileage Plan miles will be one of the most valuable currencies for me for the next few years. Unfortunately, opportunities to earn them besides through flying are pretty limited. I have a good relationship with Bank of America, so I’ll keep an eye out for heightened credit card signup bonuses in 2021 (the current offer is for 40,000 miles with a waived annual fee the first year).

Another option for flights operated by Alaska and American will be to transfer Ultimate Rewards points to British Airways Avios, which should be redeemable for the lowest-priced award tickets on either carrier. Tickets to the Pacific Northwest cost the same with Avios as they do with Mileage Plan, and British Airways offers periodic bonuses when transferring points in. Unfortunately, those low-level award tickets are few and far between, so realistically Mileage Plan miles and companion fares will remain the best way to book Alaska Airlines flights. Flights to the Midwest on American cost just 15,000 Avios roundtrip, which would create a decent opportunity if flights weren’t already so cheap. Instead, I’ll likely just pay with Flexpoints or Arrival+ miles and credit the flights to Alaska.

Finally, my American balance, about 15,000 miles, is low enough that my two best options are to either spend it down entirely (for example on a 15,000-mile roundtrip redemption to the Midwest), or to aggressively boost it with a new credit card application. Since Citi doesn’t want my business anymore, that would mean a Barclays Aviator Red MasterCard (current signup bonus of 50,000 miles, $99 annual fee not waived). With no minimum spend requirement, that’s almost a tempting offer, but I don’t have a concrete enough redemption in mind to justify the application for now.

Hotel Programs

My two main hotel programs are Hilton and Hyatt, and here things are actually looking alright.

While my World of Hyatt points balance is low, I’m sitting on one Category 1-4 free night award from 2020 (extended until December 31, 2021), earning another by spending $4,000 on the card by December 31, 2020, and will receive a third when my card is renewed in April 2021. This is perfect as I already have (tentative, vaccine-dependent) plans for these awards in July, since a new Category 4 Hyatt opened in Portland in February, 2020. For additional Hyatt stays in 2021 I’ll be depending on Ultimate Rewards transfers.

My Hilton balance is in much sorrier shape. I actually went into the pandemic with a reasonable reserve, but it’s also the only hotel currency I’ve redeemed since March: two nights on the Eastern Shore in August and a 4-night stay in the Midwest in October. Without accelerated earning or definite plans, I simply stopped putting grocery store manufactured spend on my American Express Surpass card. Since American Express updated their website to show progress towards the $15,000 spend requirement to earn a free weekend night certificate, I realized there’s virtually no way I’ll spend that much on the card this year. Simply put, it was a wasted year not earning one of my favorite rewards currencies or the free night certificate that’s a main justification for keeping the card. In 2021, I’ll be ramping up spend again and getting ready for redemptions in the summer and fall.

Conclusion

I’ve gone into a lot of detail here because I think readers benefit more from knowing precise information they can compare against their own experience, rather than the idealized stories people are paid to sell. My situation is crystal clear: I try to earn the miles and points I need for the trips I want to take, and since March, I haven’t wanted to take any trips. On the contrary, I’ve wanted to keep my household safe, and keep my friends and family safe, so I pivoted my strategy towards earning cash back I can “redeem” today, rather than miles and points that I wouldn’t be able to use for 12-18 months.

As the vaccine enters widespread distribution, it’s time to start thinking about pivoting back. That means ramping up my most useful currency, Chase Ultimate Rewards, while also starting to pay renewed attention to Alaska Airlines, Hyatt, and Hilton earning opportunities.

Why are some Visa cards dropping collision damage waiver coverage?

As I tweeted out on Friday, I was surprised to get an e-mail from US Bank telling me that my Flexperks Travel Rewards card would no longer have “Auto Rental Collision Damage Waiver and Extended Warranty Protection” as of February 1, 2021. Today I saw Doctor of Credit report that several additional Visa cards will be dropping the same or related benefits.

All of which made me wonder, what the heck is going on?

Virtually all credit and debit cards include rental car collision damage waivers

I’ve written extensively about the nuances of rental car insurance in the past, since it’s a particularly complicated issue for folks who don’t own their own cars. That’s because car owners typically have liability insurance that covers them whether or not they’re driving their own cars, while non-car owners have to patch together liability (you hit somebody) and collision (you hit a tree, or an uninsured driver hits you) coverage.

Since most travel hackers are sufficiently well-to-do to own at least one vehicle, rental car insurance is typically put in terms of the collision damage waiver coverage when you pay for a rental car with your credit or debit card, and is framed in terms of “primary” versus “secondary” coverage, the difference being that secondary coverage kicks in after your car-owner insurance, leaving you potentially subject to penalty premia going forward, while primary coverage sidesteps your preexisting insurance.

This is all extremely boring, since virtually all credit and debit cards offer at least secondary rental car collision damage waivers. All you really need to know is to decline the collision damage waiver coverage offered by the rental car company when you check in.

Until February!

Rethinking value?

The main reason credit and debit cards offer collision damage waiver coverage is that it’s so cheap to provide: most people don’t get into rental car accidents most of the time, most people who do get into rental car accidents have their own insurance coverage, and most rental cars aren’t that expensive. It’s basically the Gerber Life Insurance of benefits: you make a lot of people feel good about their life decisions without ever having to pay out a claim. Paying out the occasional claim to replace a bare-bones Toyota Camry isn’t even a blip on Visa’s balance sheet.

Of course, the flip side is that people who never use a benefit are unlikely to appreciate it, no matter how cheap it is to provide. So theoretically the offer of “ID Navigator Powered by NortonLifeLock and Postmates benefits” to replace collision damage waiver coverage might be more immediately tangible to some current Visa cardholders.

But let’s not kid ourselves: that’s almost certainly not what’s going on.

Changing processors

The most obvious explanation for what’s going on is that US Bank and some related entities (e.g. “Elan Financial Services,” a wholly owned subsidiary of US Bank) are switching credit card processors. Unlike many banks, US Bank has continued to issue both Visa and American Express cards, so I assume that the current transitional period is going to be used to move some or all cardholders from Visa to American Express (or vice versa!).

If you rely on credit card collision damage waiver coverage, be careful!

By February 1 ,2021, we’ll have a much clearer view of the situation. Was the announcement of the discontinuation of rental car insurance benefits a holding pattern while the benefits for revamped cards are negotiated and rolled out, or a permanent devaluation? It’s an interesting question, but not an actionable one.

The actionable question is, what credit or debit card are you going to use to book your next car rental? If you rely on the collision damage waiver coverage provided by your bank, make sure your bank actually offers it.

Galveston Revisited: my interview with the head of Galveston Park Board

Back in May, Sam and Robert of the Milenomics Squared podcast (and a slew of other activities in and around the world of travel hacking) invited me to join their network and record a biweekly podcast. As a reminder for folks who missed the initial announcement, there are two ways to get new and archived episodes of The Manifesto:

• My paid subscribers get access to my occasional subscribers-only Newsletters and a dedicated podcast feed for episodes of The Manifesto.

• Subscribers to the Milenomics Podcast Network Patreon get access to all the shows on the network (but not my Newsletters).

And of course you can sign up for both if you want to listen to all the shows on the network and receive my Newsletters: they’re two great tastes that taste great together!

Try before you buy: a free sample episode

Now that I’ve had a chance to get my sea legs as a podcaster, as a treat we’re making lucky episode 13 free for non-subscribers to listen to. This episode is an interview I recorded in September with Kelly de Schaun, the head of the Galveston Park Board. As long-time readers know, I have a somewhat fraught relationship with the island of Galveston, so one of my first ideas when the podcast launched was to hear the other side of the story: what do people who love Galveston love about it? The interview took a while to schedule, but Kelly did not disappoint and we had what turned out to be a fantastic conversation.

You can download or listen to the episode on the web on the Milenomics website, or find it through Apple Podcasts on the Milenomics Squared no-annual-fee feed. If you already subscribe to The Manifesto dedicated feed or Milenomics Squared premium feed, you should already be seeing it there.

I hope you enjoy listening to the episode as much as I did recording it. And if you aren’t a subscriber already, please consider subscribing to one (or both!) of our projects for more great content like this.

Foreign exchange products: TransferWise and Revolut

As long-time readers know, I listen to a lot of podcasts, and so I end up hearing a lot of podcast ads. A few months ago, I started hearing ads for a new international payment service called TransferWise. As someone who has occasionally needed to send money overseas for things like tuition, and receive money from abroad for things like voice acting work, I’m familiar with how complicated and expensive the process traditionally is. Of course, people who send monthly or weekly remittances abroad pay even higher fees, as a percentage of each transaction.

Then today Doctor of Credit wrote about another similar service, albeit one with a slightly different business model. I’m not sure what has caused this outbreak of new streamlined international payment services, whether it’s less strict enforcement of anti-money-laundering laws or a new central bank agreement on currency conversions, but the products certainly appear easier and more transparent, if not cheaper, than traditional money transfer services.

I did reach out to TransferWise’s PR department to schedule an interview for my podcast, The Manifesto, but haven’t heard back from them. In the meantime, I did a little research and wanted to share some thoughts on these new products.

TransferWise

Sending Money

TransferWise’s main selling point is its transparent up-front pricing. All you have to do is create a free account to see the exact conversion rate and fee you’ll pay to send any amount between any two currencies. For example, to pay the 22,900 Czech koruna tuition fee at the Olomouc Summer School of Slavonic Studies, you will pay a $3.13 ACH debit fee and $6.46 to TransferWise:

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You can send money by entering your recipient’s local bank account details (e.g., the Czech bank account details of a recipient of Czech koruny, the IFSC code for an Indian recipient of rupees, etc.), IBAN number, or other destination-dependent information.

Receiving money through TransferWise is slightly more complicated, and varies depending on whether you’re configuring a business or personal account.

TransferWise Business Accounts

Setting up a business account to receive money is relatively simple:

First, you need to set up a “multi-currency account.” Unlike sending money, which is allowed with a free registration, receiving money requires a (one-time, I believe) payment of $31 to receive bank details for 7 “local” foreign currency accounts:

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Note that these are not the only currencies you can receive funds in; rather, these are the seven currencies you receive local bank details for. If you’re being paid by a client in New Zealand, it may be cheaper or more convenient for them to send money to a New Zealand bank than to a US or British bank, for example. You should be able to provide those bank details to anyone in any country to receive money, but any inbound transfer will be converted to the currency of the bank whose details you provide.

TransferWise Personal Accounts

Setting up TransferWise personal accounts to receive money is a little more cumbersome, although should be slightly cheaper in practice. That’s because instead of paying a single flat fee to receive your bank details for all seven local currencies, you instead have to make an initial deposit into each currency you want bank details for. The amounts for each currency vary slightly so I’ll simply list them here:

• Euro: 20 EUR

• US Dollar: 20 USD

• Singapore Dollar: 30 SGD

• Australian Dollar: 30 AUD

• British Pounds: 20 GBP

• Hungarian Forint: 6,000 HUF

• New Zealand Dollar: 30 NZD

If you already have an external account denominated in a given currency, then you can make a same-currency transfer for a nominal fee. If you are making a deposit from a different-currency account (e.g. making a EUR deposit funded with a USD account) you’ll also have to pay TransferWise’s conversion fee. While this is a bit cumbersome, I don’t think there’s anything necessarily nefarious going on here: for personal use, most people probably only need a foreign currency account in a single currency, for example someone with relatives in Europe or Britain may only want to move money between USD and EUR or GBP, and so ends up saving money by making an unnecessary “deposit” into their account compared to paying to open up 6 additional accounts they’ll never use.

One obvious reason you might set up a TransferWise account in your home currency is to receive payments, international or domestic, without revealing your “real” bank account information to the payer, especially if you’re receiving payments from an untrusted source or simply a country with weaker bank privacy and security standards than your own. Most of us have throwaway bank or credit union accounts we can use for those purposes, but most US banks still charge fees when you receive international payments.

If you receive frequent or, especially, small international payments, a TransferWise account may make sense as a payment target since receiving money is free (oddly the help page appears to be out of date and lists “USD, GBP, EUR, AUD, NZD, and PLN” as the currencies you can receive for free — they do not offer Polish local bank details, and do offer Hungarian and Singapore local bank details). You can then make a “withdrawal” by sending your total balance to your regular US bank account for a nominal fee (for example, $4.23 for an outbound transfer of $1,000).

TransferWise Debit Card

Finally, personal TransferWise customers can order a debit card (for a $9 fee), which has two purported benefits. First, if you spend money in a currency you have in your account, then the money is deducted from that account without charging a currency conversion fee. In other words, if you are planning to travel to Europe, you can move money into your EUR account ahead of time and not pay foreign transaction or foreign currency fees. Second, if you spend money in a currency you don’t have in your account, you pay TransferWise’s conversion fees and get their conversion rate, but still avoid those foreign transaction and foreign currency fees. Most, but not all, premium credit cards no longer charge those fees, but some still do, and most no-annual-fee credit cards do, so it’s not hard to imagine people for whom a $9 TransferWise debit card might offer real savings, compared to their other options.

The third, unadvertised benefit of the TransferWise debit card is a way to reduce the cost of withdrawing money from your TransferWise balance. Buying a single $0.88 Walmart money order, or even two $0.99 money orders from Western Union, will end up well below the $4.23 TransferWise wants to charge for the same $1,000 withdrawal. TransferWise wants you to keep money in their ecosystem, and you want to get it out. The debit card appears to offer one easy way out.

Revolut

Doctor of Credit’s writeup of Revolut was focused on its function as a high-interest savings vehicle, for obvious reasons, but it’s actually slightly more interesting than that. Like TransferWise, it’s actually a platform for making both same-currency and foreign-currency payments, especially to other Revolut users. You can imagine the pitch meeting: “Venmo for the globe-trotting elite,” “PayPal for the rootless cosmopolitan.”

Revolut Savings

Revolut’s pays interest based on two calculations: free accounts earn 0.25% APY, and paid accounts earn a base 0.5% APY, with an additional 4.5% APY paid on the amount in your savings account up to the amount you spent on your debit card that month. The obvious problem with this scheme is that at face value it seems to require you to have access to twice as much money as you plan to earn interest on. After all, you need the same amount of money in your Revolut spending account as you do in the savings account in order to earn the maximum interest on the latter balance. There are two reasons that’s not quite right.

First, let’s look at a brute force calculation of how much you earn and pay when you attempt to maximize your Revolut interest as a traditional high-interest checking account, like those I’ve written about many times in the past. Using some round numbers:

• A $10,000 savings balance earning 5% APY will earn $512.67 in interest per year;

• 12 months in the “Premium” plan will cost $119.88 in monthly fees;

• In order to earn 5% APY on your balance, you’ll need to spend $10,000 per month on the Revolut debit card (technically slightly more over time as your savings balance grows). At $0.88 per $1,000 Walmart money order, this comes to a total of $8.80 per month, or $105.60 per year (obviously use your own liquidation costs in your own calculations).

That gives a total annual interest income of $287.19, or an APY of 2.87%. That’s not great. Not terrible, but not great. Note that in this calculation that you don’t need to keep the money in the spending account all month: you only need it available on the day you make your money order purchase. In fact, there’s no reason you couldn’t transfer your savings balance to your spending balance on the first of every month, spend it all, then redeposit it immediately and transfer it back to savings. You’d miss a few days of interest each month, but you’d be earning interest on the same pool of money.

Second, since qualification is monthly, you can use Revolut savings opportunistically to earn a high interest rate on large balances you can only pay with a debit card. The obvious example is a school which allows semester bills to be paid fee-free with a debit card, but that adds fees for credit card payments. Moving $40,000 to a Revolut savings account on the first of the month, and then making a $40,000 tuition payment at the end of the month, should meet all the requirement to trigger 5% APY on your entire balance. Those with especially large estimated tax payments might also decide to trigger a 5% APY on their payments just 4 months of the year instead of all 12.

Note that by my reading of their terms, you can’t easily swap in and out of paid plans, so if you plan to try something like this, you should commit to it for the whole year or you’ll have to pay at least a $19.98 “break fee,” plus any months of unused benefits. They do claim to offer a discount for annual memberships but I couldn’t easily find any public information about it.

Revolut Travel Benefits

Remember above I mentioned that Revolut was supposed to be a payment app for hip globetrotters, and paid plans come with a number of benefits that might offset their obnoxious fees. Unfortunately, their US site doesn’t provide many details about them. Here are the ones that jumped out at me, in no particular order:

• Lounge Key Pass. This is, near as I can tell, virtually identical to Priority Pass, in that it offers “discounted” entry into participating lounges, and the participating lounges more or less perfectly overlap with Priority Pass. Just as with Priority Pass, it virtually never makes any sense to use this benefit, unless you can use…

• SmartDelay. Ordinarily, Lounge Key Pass membership gives you access to participating lounges and restaurants at a cost of $25 per person. “Premium” and “Metal” Revolut subscribers get free access to those same lounges and restaurants for themselves and one (Premium) or three (Metal) guests after their flight has been delayed for one hour. Essentially, you enter your flight information into the Revolut app, and if the flight has not departed one hour after scheduled, you receive the free Lounge Key passes. The passes do not have to be used in the airport you’re delayed in, but they do expire after 48 hours. Any possible mischief here is left as an exercise for the reader.

• Overseas medical, delayed baggage and delayed flight insurance. These have the potential to be extremely valuable benefits…but the website provides no information about the terms and conditions of the benefits.

Conclusion

In my casual research, I gathered that despite its primitive website and missing language about important benefits, Revolut is actually a fairly established company, with many satisfied and not-so-satisfied customers in Europe and elsewhere. Having just planted their flag in the United States, they’re no doubt still getting their ducks in a row regarding many of the benefits they claim or pretend to offer, and that naturally makes me hesitate to take any of their promises at face value.

TransferWise is a more traditional Silicon Valley startup (they brag about having Peter Thiel as an investor, which I would reconsider were I in charge of marketing), but I appreciate their upfront pricing and extremely functional interface.

Finally, I want to touch on something that I thought about while looking at both companies: foreign currency diversification. Traditionally, retail foreign currency trading is done using either very short-term financial derivatives, or foreign-currency-denominated bonds, rather than buying and holding foreign currencies directly. Obviously a lot of us have piles of euros, koruny, and lats lying around at home leftover from previous trips, but it’s relatively complicated (not to say dangerous) to invest in foreign currencies directly, since consumer US bank accounts don’t hold foreign currency deposits.

Both of these companies allow retail investors to spread their cash across multiple foreign currencies with low exchange fees and, in the case of TransferWise at least, no monthly fees. For folks uncertain about the shape of the future economy, I can see potential value in distributing some amount of cash across a range of foreign currencies, not in the belief that any one of them will collapse or any one will skyrocket in value, but on the chance that one or all of them could do one or both.

TransferWise does have a referral program but the rules are so convoluted I won’t bother sharing my personal referral link. As I mentioned above, I’m trying to get in touch with their PR team and have asked for a promo code I can share with readers for free multi-currency accounts or something of that nature that might actually provide some value.

Non-owner car insurance

Non-owner car insurance is one of the least-understood insurance products because it is needed by so few people: most people who drive own a car, and most people who own a car have car insurance. Moreover, even if you don’t own a car but borrow a friend’s car to run the occasional errand, you’re almost certainly covered by their car insurance policy.

Non-owner car insurance thus fills a relatively narrow gap: people who drive often enough to need liability insurance, but not often enough to buy and insure their own car.

Basics of car insurance

Any kind of car insurance policy has four potential components:

• personal or medical liability: you hit somebody, they have medical bills or certain other expenses, your insurance covers those expenses.

• property liability: you hit something, cause damage to it, your insurance pays the owner for the damage.

• uninsured and underinsured motorist: an incident occurs which you are not liable for, but the liable person has too little or no insurance to cover the damage to you or your vehicle, your insurance pays the damages instead.

• comprehensive or collision: your car hits something or something hits your car, your insurance repairs or replaces your vehicle. “Comprehensive” coverage differs from “collision” coverage by covering repair or replacement in circumstances besides collisions, most importantly including theft, but also things like severe weather damage or other non-collision incidents.

All car insurance policies cover medical and property liability with minimum statutory limits, and usually include uninsured and underinsured motorist coverage as well. Here in DC all three are mandatory, with slightly different minimum limits for each. If you already own an insured vehicle, then your coverage applies when you rent most cars as well.

Comprehensive/collision coverage is different because unlike the other three, if your vehicle is uninsured, there is no “free rider” problem: if you crash into a wall and the wall is unharmed but your vehicle is totaled, you’re on the hook for the decision to replace your vehicle or not. People who drive older or cheaper cars can and do thus opt out of comprehensive insurance and take their chances, or “self-insure” if you prefer.

Credit card rental car insurance

Virtually all credit cards provide a benefit called something like “Car Rental Loss and Damage Insurance” (American Express) “Auto Rental Collision Damage Waiver” (Chase), or “Secondary Rental Car Collision Coverage” (Discover). The logic here is that all car owners have personal liability, property liability, and uninsured driver insurance, but since some don’t have comprehensive or collision insurance, the credit card will stand in for that fourth leg of the liability stool.

Here credit card bloggers will start to wax about the differences between primary and secondary coverage, but as I’ve written in the past, that distinction only matters if you’re not involved in an accident with another vehicle. If another driver is involved, you’ll have to involve your insurance company anyway, and the benefit of “primary” insurance (keeping the accident “secret”) evaporates.

But what if you don’t own an insured vehicle?

Rental car company insurance

Depending on the rental company and the state, rental cars may already be insured to the minimum required liability and property insurance amounts:

• According to Avis’s website: “Avis provides liability coverage for all our vehicles as required by local laws. However, in some states, the coverage provided by Avis is only applied after the renter’s personal insurance has been used to cover all that it can.”

• Hertz claims that: “If renting in Maryland, Massachusetts, Michigan, New York, South Carolina, Virginia, or West Virginia: Upon signing the Rental Agreement, Hertz provides primary liability protection. However, such protection is generally no more than the minimum limits required by individual state law. See Financial Responsibility Limits by State” (I was not able to find any such page).

Rental car companies are also happy to sell you supplemental insurance, but this insurance is very, very expensive. The rate for a daily liability insurance supplement at Hertz’s Washington National Airport location is $18.85, which appears to be fairly uniform at the various rental locations I checked (no idea why Portland’s was 7 cents cheaper).

But of course, the reason to carry insurance coverage is not to satisfy the requirements of the law. Insurance is worth paying for if it’s able to protect you against catastrophic losses.

Non-owner car insurance

In the Before Time, my partner and I flew out to Indiana a few times a year for long holiday weekends, and since we didn’t own a car, the supplemental liability insurance was always a pain point. On shorter stays we’d pay it (what’s $15?), on longer stays we’d skip it (who’s got $100 just lying around?).

But since long-distance and air travel are out of the question for the time being, I finally decided to look into non-owner car insurance. The main distinction between non-owner and owner car insurance is simple: the insurance company doesn’t care what vehicle you’re driving, because they’re not responsible for insuring it. Instead, they exclusively cover the personal and property damage you do (and the damage done by uninsured drivers to your vehicle).

Unfortunately, I’ve never found an insurance company willing to offer quotes for non-owner car insurance online. Nerdwallet has a post from over a year ago with the relevant phone numbers for a variety of insurance companies, but that’s the point: they’re phone numbers. Since I happen to already have a renters insurance policy with USAA, I called them first, but I don’t have any reason to believe USAA’s rates are any better or worse than the other options. These rates are purely for the purposes of comparison.

It turned out that the great advantage of non-owner car insurance is that it’s cheap. For a $100,000 per person and $300,000 per accident policy, I was offered a rate of $189.17 for six months (or $31.53 per month). The minimum legal coverage ($25,000 and $50,000) came in a little lower at $24.54 monthly, and what I would call a “supermax” policy of $1 million in personal liability and $500 thousand in property coverage was $47.77 per month.

Conclusion

I’m not here to tell you it’s fun to spend money, or that you should spend money you don’t have to. If you’re an average American travel hacker with an average American car and an average American car insurance policy, this post just doesn’t apply to you.

But for folks who have been overpaying for years or decades for car rental liability insurance by the day, I do want this post to let you know there’s a better, cheaper way.

Who is the Inspirato Pass ripping off (and who is rich or dumb enough to find out?)

Every 21st century tech scam involves ripping off some combination of three groups of people: customers, service providers, and investors. If you can exploit regulatory loopholes it’s icing on the cake.

Customers

You might expect customers to be the biggest victims of tech scams, but in my experience that’s relatively rare, simply because customers have the least money of the three groups, and tend to guard it best. Customers are most vulnerable when it comes to subscription services, but in those cases the scam is fairly transparent, or even harmless: gyms sell more memberships than they have equipment with the understanding that most members won’t show up very often, and dedicated athletes simply plan their workouts during slower periods.

Another frequent occurrence is customers victimized not by the platform, but by the service provider. A wonderful Vice article from last October described how scammers used AirBNB to advertise properties they would then substitute for uninhabitable units when guests arrived. AirBNB’s technology and policies made the scam possible, but the company itself wasn’t actively participating in it.

But ultimately, customers are not often the victims of tech scams. Uber has never and will never turn a profit, but their customers really do receive the transportation they pay for. MoviePass never stood a chance, but their customers really did get to see movies.

Service Providers

Service providers often end up being the victims of tech scams, especially in fragmented and competitive markets. Restaurants, particularly during the pandemic, may feel they need to participate in delivery services in order to stay in business, and are thus willing to sign over a huge share of their revenue over to platforms like DoorDash and Grubhub.

Contrast that with MoviePass: logically, movie theater seats, like airline seats, are the ultimate “expiring” good: the second the movie starts or the plane takes off, empty seats lose their entire value. In the case of aircraft, the mere presence of the seat adds to the flight’s fuel expense with no off-setting revenue. But movie theaters, unlike restaurants, operate in a super-consolidated market, with even very large cities having just 4-5 companies operating all or almost all of their movie theaters. That gave AMC, Regal, Loews, and Carmike leverage over MoviePass: if MoviePass wanted customers, it had to pay the theaters whatever they demanded, and what they demanded was full price.

Investors

In most cases, it’s obvious who’s getting ripped off by tech scams: it’s the investors. Ride-share services like Lyft and Uber cannot be operated profitably, but they are being operated: customers get the rides they order, and drivers are paid to provide them. The difference between the price riders pay and the amount it costs to operate the service comes from the only place it can: investors. This is good and right, since investors also have the most money to lose of the three groups of potential victims.

Of course, these three models can mix in different amounts. Customers who paid up front for year-long MoviePass subscriptions were certainly victims of the company’s insolvency right alongside the company’s investors, and even movie theaters that had adjusted their expectations based on the surge in MoviePass ticket sales had to adjust them back down after the sales vanished overnight.

How Inspirato is supposed to work

That’s the framework I brought while reading yesterday’s Miles to Memories post about the Inspirato Pass. For a $2,500 initiation fee and $2,500 per month, you get what works out to about 14 days per month of hotel stays, with “no nightly rates, taxes, or fees.” The mechanics are a bit complicated, and completely opaque unless you have a membership, but it seems that each Inspirato Pass allows you to make one 7-day reservation at a time, and on the day you check out, you are allowed to make another reservation at a minimum of 7 days out. That means 14 nights are included for every 28 days, or roughly 182 nights per year. Including the initiation fee, maximizing the pass during the first year works out to roughly $178 per night ($164 per night for future years).

Hilariously, Inspirato explicitly says you are allowed to have more than one Inspirato Pass, which would allow for back-to-back 7-night bookings: “If you are interested in multiple reservations for Inspirato Pass, you can simply purchase another Pass."

Before we get too off-track, let’s be clear: at face value, this is a pretty good deal, if it works even close to how it’s advertised. If you’re the kind of person who would pay $6796 for a 7-night stay at The Westin Snowmass Resort from Christmas through New Years, then paying $2,500 for the same stay is a good deal. Paying $1,250 for the same stay is an even better deal, which is where you’d end up if you booked two week-long stays the same month, 7 days apart.

How does the Inspirato Pass really work?

Inspirato does have a booking engine that appears to reflect availability in real time, so I ran two simple tests: a 7-night reservation in the United States beginning two days out (the minimum booking window) and one beginning 7 days out (the minimum booking window after a completed stay). The two-day booking window was pretty grim, with only 4 properties available for 7-night stays, in Savannah, Portland, Baltimore, and San Francisco:

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To save you the trouble, here’s the breakdown of paid rates at these hotels for these dates:

• Hyatt Regency Savannah: $844.30

• Portland Marriott Downtown Waterfront: $1,023.97

• Baltimore Marriott Waterfront: $732.03

• InterContinental Mark Hopkins San Francisco: $1,156.05

In other words, at none of these properties would you be better off paying $1,250 for a 7-night stay rather than the rate publicly available to anyone with a web browser.

The 7-day advance booking window is at least slightly more interesting, with options in Las Vegas, Boston, Colorado, and Texas. The Vdara in Las Vegas cracked the $1,250 barrier at $1,749.50, but that difference depends largely on whether the Inspirato’s “no nightly rates, taxes, or fees” claim includes resort fees, which make up a whopping $357.15 of the stay’s cost.

Is the Inspirato Pass a gym membership or a MoviePass?

This is the question I keep returning to. The logic of 21st century tech scams is always the same: [W capital asset] is unused [X percent of the time], why not charge [Y percent discount] or [Z subscription fee] to people who have have more time than money to maximize the usage of the fixed capital investment?

Like a very expensive gym membership, obviously Inspirato is capable of being profitable: any business that charges customers $30,000 annually is capable of being profitable! Since Pass members can only make one reservation at a time, surely around holidays some customers will feel the impulse to “lock in” their reservation in a single high-value reservation, even if that means paying multiple months of membership fees for a single week-long reservation a month or two in the future.

Like MoviePass, Inspirato doesn’t seem to have worked out any particular bargains with any of the hotels on their site. Their availability roughly matches the publicly available rooms. That inclines me to think they’re operating like a MoviePass, paying full freight (or perhaps slightly discounted corporate rates) for rooms, and using their inactive members’ money to pay for their active members’ rooms.

Conclusion

I don’t have any insight into Inspirato’s business model or balance sheet. But my very strong hunch is that we will see the same “observer effect” as we saw with MoviePass. As long as the company flew under the radar, they were able to finance the difference between the membership fees they collected and the ticket prices they paid. As soon as it became a nationwide phenomenon, their ticket purchases swamped their revenue and the company collapsed.

Inspirato has a built-in bulwark MoviePass didn’t have: they charge $30,000 per year! And maybe that incredible price point will discourage enough people to keep the platform viable. But, in my experience, rich people are even more meticulous about maximizing the value they get from every service they subscribe to, and I can’t imagine the Inspirato Pass will be any exception.

As long as the Inspirato Pass remains an affectation for rich weirdos, it might survive, and there’s no reason not to look into the value they’re offering for close-in trips. Just keep in mind, the second people start hammering it as hard as they can, the booking restrictions, “abuse” allegations, and insolvency are likely to follow. It’s a movie we’ve seen so many times we can recite the lines by heart.