Interest money

How companies ask you for extra money

Businesses know the overwhelming power of the status quo.

I have received several letters from energy retailers over the years saying “Congratulations. Here’s your new plan,” hoping that I won’t notice the price increase.

Insurance companies also do this with their annual renewals although fortunately they are now made in some states to show both the new and old premium in their letters.


There are companies whose entire revenue-generating business model depends on what they call “breakage.” It’s an accounting euphemism for revenue from services we’ve paid for but don’t use.

Gift cards are the worst example.

It’s a closely guarded secret how much of the value of gift cards is never redeemed, but US giant Costco once estimated its gift card “breakage” at 9%.

Many companies offer gift cards for this reason. It’s a bit like a casino, where the odds are in favor of the house. They know they may never have to shell out a significant minority of the gift card dollars they sell. That’s why in 2019 the law changed in Australia to require at least three years before gift cards expire.

This also happens with frequent flyer miles and points on credit cards. Then there are the millions of dollars in airline vouchers Australians have received for flights canceled due to COVID-19 over the past two years. Many of these vouchers may never be redeemed.

The losers will be the customers, not the airlines.


Governments also know the power of human fallibility.

That’s why they can announce new spending programs with big numbers, knowing that it probably won’t cost them much in the end.

For example, two years ago the New South Wales government launched a $640 million “Home Empowerment Programme” to provide homeowners with interest-free loans of up to $14,000 to install signs. solar and batteries. However, to date, barely 500 people have adopted it.

Commonwealth Bank and NAB each announced $2 billion in funds for client cleanup after the Royal Banking Commission, but they only paid out a fraction of that amount, mainly because it falls on their clients to claim it.


The “defects” are crucial for the results. Any benefit that we have to “sign up” for is not really a benefit at all.

Nobel Prize-winning economist Professor Richard Thaler called it “the architecture of choice” in his best-selling book Nudge. Along with co-author Cass Sunstein, he showed many ways it can be used for good, but we also need to recognize when it’s being used to take our money.

  • The advice given in this article is of a general nature and is not intended to influence readers’ decisions regarding investments or financial products. They should always seek professional advice that takes their personal circumstances into account before making financial decisions.

Joel Gibson is the author of KILL BILLS. Catch his money-saving segments on New Radio, Today and on Twitter @joelgibson.