Manufactured Spending with Kiva
So last week we looked at the possibly unfortunate Currency Exchange Loss problem with Kiva. Today, we’re going to see if we can still make manufactured spending with Kiva work.
If I start with the Chase Sapphire Rewards Card and assume I have the full $4000 limit to spend, how would that scenario play out?
Lets say that I do the whole thing on day one. Deposit $4000 onto Kiva with the Chase Sapphire Rewards card and pay off the amount before the end of the month. Boom! Done, I’m a winner. Gimme my points.
But hold on, we’re making two pretty big assumptions here.
One is that I just have $4000 hanging around to pay off my bill and the other is that I can afford for that $4000 to be tied up for X number of months while I it’s getting repaid from lending it.
Then of course we want to make sure we’re not losing money through Currency Exchange Loss.
So the first step here (before we even deposit) is to figure out who we’d be lending too. That way we know our repayment schedule and what our potential exchange losses are.
Our Ideal Candidates
There are a few things we can identify that will make this process more effective. They are the repayment terms and the historical exchange rate losses.
We want to make sure the money can be turned around as quickly as possible as well as keep the Currency Exchange Loss as close to zero as possible.
Having a quick look around, December 2016 (8 months), is the quickest turnaround I can find. That’s not necessarily very attractive but for the sake of this experiment lets go with it.
Luckily, the Microfinance Institution is an attractive one. It has a 4 star rating, 5 social performance badges, a 6 year history and a currency exchange rate loss of 0.00%.
I think this one will work out nicely.
The Manufactured Spending Cycle
Now that we’ve chosen our MFI we just have to break down the repayment cycle to determine how much money we will have and when we will have it. Now, I wouldn’t actually loan 1 person the whole amount and she only actually needs a few hundred dollars but for the sake of simplicity I’m going to assume (wrongly) that I found $4k worth of similar lending options. This is very close to a best case scenario so if I can’t make it work this way then it’s not gonna work.
To figure this out I’m just going to create a Google Spreadsheet to keep track of everything.
So by just breaking down the payment percentages and pretending the loan is $4000 we get this.
First thing we can immediately take away from this is that we are not actually locking up $4000 until December. Once the money gets paid back we will be able to withdraw it and by the end of July we will already have access to over $1000. By September we will have $2400.
So if we assume that our application went through in April and we hit the spending bonus in April then we would be on track to do our next CC application in July…
Hmmm…I still feel like we’re going to end up tying up way to much money by the end of this.
Ok, lets speed things up a bit and look at a year-long scenario. We’ll start with the $4k spend and then do $2k-$3k every 3 months. We’ll use the same payment terms for everything and if it doesn’t look terrible then we can begin looking at more realistic scenarios.
Here are the lending assumptions I made for repayments. We’re going to assume Exchange loss is still 0.00%
And here is the repayment results.
That’s pretty gross.
At one point we are tying up $5200 in manufactured spending. I’d have to run a lot of numbers but I’m pretty confident I can’t afford that.
I think if we want to do this successfully we are going to have to identify a number that we are comfortable tying up in Kiva over a prolonged period. This number is going to vary depending on the person.
For me, since I know that I will already have most of the spending figured out (details on that in a later post), I am going to say I am comfortable with $500 on our first go round with no more than $1000 in play at any one time.
This looks a little better.
That’s the ideal scenario anyway. In our previous look at Currency Exchange Loss we had assumed a loss of 1.14%. Lets bake that into every payment and see what happens.
So nearly $1000 gets tied up for about a year.
$500 at a time in manufactured spending is not going to allow us to go crazy with the credit cards (probably a good thing) but it should be a pretty big help in meeting the spending requirements alongside our usual spending within the time frame. For example, $500 would get us halfway to the 2 free night bonus with the Chase Hyatt bonus or the 30,000 bonus miles on the Chase United MileagePlus Explorer.
Now while I’m not sure how much value 2 free nights at Hyatt is we can guess at the miles. From what I’ve read, NerdWallet values each mile at 1.7 cents which I believe makes these points valued at $510 in United flights. While I’m not sure that’s the best deal to go with it does mean that when we factor in the currency exchange loss we are still coming out ahead, which I believe now will most always be the case when spending for sign-up bonuses.
Overall it looks like this process of manufactured spending has some promise. Depending on what your tolerance is for keeping money tied up for a bit and how much impact you believe Kiva actually has this may be a viable path for you.
For me, I think this is something I am going to experiment with further down the line but first I need to figure out if Kiva actually has the impact I would need to see to justify using it as an effective tool towards helping reduce poverty or if I will limit the funds to just manufactured spending.