Personal Choice = Poor Choice?

[This article was originally published in the February 2018 Redseason Newsletter as part 1 of a 3 part series.  The other two articles covered Wyndham Rewards and Does A WorldMark Membership Save Money]

Over the last couple of years I have noticed a big increase in the number of Worldmark owners with very large memberships of 63000 credits or more (the Privileges “Platinum” level) – both from owners upgrading to try to achieve this level and also, unfortunately, with owners who have purchased that many credits from Wyndham but due to changed circumstances needing to sell.  I say unfortunately because to buy a membership of that size from Wyndham is an investment of over $150,000 but with a much lower sale price when the circumstances change.  When I ask owners of the large memberships why they have so many credits the answer is not usually that they want to take 6 or 8 weeks of holiday per year but rather that Wyndham sold them on the idea of using their credits for all their travel costs via the Personal Choice system and/or using them for hotel stays via the Wyndham Rewards system.  

Long term readers will probably know that I am generally opposed to most of the Privileges benefits as I think you can get the same things in cheaper ways outside the Privileges system and for much lower cost but the Personal Choice option is really one of my pet hates as I think it is terrible value and when Wyndham sales people push this benefit they are really bending the truth quite badly.  I thought given that Wyndham seem to be pushing this more and more that it was time to revisit this and lay out just why I am so opposed to it.

So What Is Personal Choice
Personal Choice is a benefit available to Privileges owners who have at least 35000 Privileges credits (Diamond level).  It enables owners to use their credits to essentially book any travel related item through the Travel Club service and pay with credits rather than cash.  The Wyndham sales staff push it as a way to pay for your whole holiday with credits including flights, car hire, etc, and usually use a sales pitch such as “if you pay cash for flights you will never get that money back but if you use credits they come back the next year and you can spend them again”.

Sounds good, so what is the problem?
The main issue is that the rate Wyndham use to convert credits to pay for these items is less than what you pay in levies each year.  Whilst it is true that your credits come back each year but so do your levies and the money you spend on buying the credits to use for this also never comes back! 

As with many things an example can be the easiest way to illustrate the problem so let’s meet our fictional family Mr and Mrs Smart.  Max and his wife (never said I was original with my names!) have 3 kids and like to go away for around 2-3 weeks per year.  They have purchased 25000 Worldmark credits through Redseason (told you they were Smart!) and find that is usually enough for their accommodation as they tend to spend around 2 weeks it Worldmark resorts such as Fiji or Kirra Beach and sometimes do a trip not using their credits such as a Cruise or a camping trip.  However on their recent holiday in Fiji they attended an owner “update” and the salesperson showed them how they could upgrade their membership and then use the extra credits to pay for all the extras like the airfares to Fiji, car hire in Cairns and even their cruise costs.  As they already knew about Redseason the salesperson could even save them $30000 on the deal by getting some of the credits from us.  The deal he outlined was:

1.  Buy 15000 more credits from Redseason to upgrade to 40000
2.  Then buy 25000 credits from Wyndham at a “special price” and they would convert all credits to Privileges so they would have 65000 Privileges credits and Platinum status which means they can use Personal Choice every year to pay for those holiday costs.
3.  Total Cost for deal was $70000 – $10000 for the 15000 Redseason credits and $60000 for the 25000 Wyndham credits. 

If they used all 40000 extra credits for Personal Choice each year that means they would still have 25000 for their accommodation and cover all their flights with Personal Choice.

The problem comes when you start looking at the real costs and what you get for the Personal Choice.  The conversion rate of credits in Personal Choice bookings is 6c per credit.  This means using 40000 credits per year would get them just $2400 in airfares, car hire, etc.  To work out the credit cost Wyndham just takes the cash price, divides by .06 and that gives you the number of credits (So $2400 divided by 0.06 = 40000 credits).

On their 25000 credits the Smart’s are currently paying $1724.68 in Worldmark levies.  If they upgrade to 65000 credits with Privileges the annual fee goes up to $4722.24 – an annual increase of just under $3000 per year.

HANG ON A MINUTE – we are paying an extra $3000 a year in fees to save $2400 on flights, etc.  That doesn’t sound like a good deal at all.  

But of course it is actually much worse than that – the Smart’s have a lot of money in their home loan redraw that they would use to pay for the credits.  Currently they pay 4% interest on their home loan so if they redraw the $70000 to buy the credits their annual interest bill on the loan would increase by $2800.  We need to add that in to the annual cost as well as they wouldn’t pay the extra interest if they didn’t buy the credits.

SO now they would really be paying $5800 extra every year to save just $2400 of their travel costs.

Max and his wife decided that Personal Choice was a poor choice for them and decided to stick with their current membership!

IN SUMMARY
Personal Choice never makes sense as even if you ignore the cost of buying the credits the amount Wyndham gives you is less than what you have paid in levies.  In the example above the Smart’s levies on 65000 credits would have worked out at 7.3 cents per credit but Wyndham only gives you 6c per credit when you use them for Personal Choice.  It is roughly equivalent to paying $121.50 to buy a $100 Coles or Woolies voucher on the basis that “you wont have to pay any money at the checkout – it is like getting your groceries for free!”  Nobody would do that (well if anybody would I have some $100 gift vouchers for sale!!) but they are happy to give Wyndham 7.2 cents to get 6c back.  I know some people then argue that “I had credits that were going to expire so better to use them this way than lose them” but if you find yourself in that situation you can always sell credits at at least 7c each (to Redseason) or book a holiday for family/friends and get them to pay for the credits (at maybe 10c each) which are both better than only getting 6c each.  If you have credits expiring every year then you probably own too many credits and again it would be better to downsize your membership than to pay more in fees than what you get back in benefits.

I will now step down off my soapbox!  As always if you have any questions on this just email me or give us a call and we are more that happy to have a chat.

*Analysis prepared February 2018 by Terry Bradford from Redseason Pty Ltd, holder of Australian Financial Services Licence number 491352. Information on Personal Choice and Wyndham credit pricing taken from Wyndham Privileges documentation and Wyndham Product Disclosure Statement current as at February 2018. Wyndham pricing has been further discounted in line with customer reports of current discount rates at presentations. Interest rate for home loan based on current CBA Variable Rates (rounded down for simplicity).