Loyalty: A word born of an age of chivalry and worn thin in an era of competition
We’re hearing a lot of sound and fury about tax, but what about the voluntary tax many of us are paying worth more than $11 billion – without realising it?
The sting in the tail is, the older you are the more likely you are to be paying it, by 11% for every 10 years you age.
Welcome to the Loyalty Tax – the cold hard extra cash you pay in some perverse tribute – not to the government but to the providers of essential services who charge you more for staying true.
The good news is, there is something you can do and usually it’s easier than you might think.
First off: fill in our 2-minute loyalty tax test to see how much you’ve been losing - Take the test now
The mere effort of doing this might spur you into action which could prove surprisingly worthwhile
Loyalty is a word born of an age of chivalry which has been worn thin in an era of competition. If you stay loyal to your bank, power company or telco you are usually paying for the privilege.
The economists, who tend to know a bit about money, call this charity on your behalf the ‘opportunity cost’ defined as "the loss of potential gain from other alternatives when one alternative is chosen".
A simple example would be the $650 million consumers have saved in the past five years by switching to cheaper (usually not big bank) home loans.
Or $394 million for those who forsook a more expensive energy supplier for a cheaper competitor. Or the $325 million saved by those who changed telcos or home insurers for better deals.
The staggering sums are all examples of the loyalty tax which creeps like stealth through your life, silently siphoning off funds you could put to much better use.
All these figures come from a recent study by the Heritage Bank and Queensland University of Technology. It looked into our collective switching behaviour and the massive savings or in more economist speak ‘ the money left on the table’.
They found while more than half of consumers considered seriously changing their home loan, insurance, energy and telco, less than a quarter actually ended up switching.
It’s those 20-25% who get out of paying the loyalty tax for life. Once they have experienced the savings it’s more likely they will carry on realising the benefits in savings exceed the switching costs such as time and effort.
Over the next week we’ll be looking more closely at the Loyalty Tax and sending you advice about how you can beat it.
Have you already taken the Loyalty Test? Leave us your comments below about what you learnt.
