It's worth a read.

A week ago Tilda and I needed to get a psmo, which is only sold at a "big box" store. So we wandered by, did some cursory research, and then entered the store itself where we were hit by a salesperson.

After the experience, I tried to break it down to Tilda, poorly, on the choices we had. If you're interested in getting a psmo, then here's how to navigate the complex costco sign-up experience:

1) Enter the store through the entrance. (Seriously, they dinged me for coming in the exit!) 2) Wander to the new sales section. 3) Get ready for some salesspeak!

The basic costco pitch is that there are three items you can purchase. There are two levels of membership, a "basic" and an "executive" which cost $50 and $100 respectively. In addition, Costco tries to get everyone to signup for an AmEx card to deepen the pot.

The pitch for the "executive" card is that you get 2% back on all cash purchases. But the sales sweetener is that if you don't spent enough money to pay for the $50 fee, that Costco will refund your money at the end of the billing cycle to ensure it costs the same. A no-brainer, right?

This pitch exploits people's vulnerability to understanding how the percentage works. It's the same logical tic that cause people to think they can "dodge" the progressive income tax by making their income fall below a certain range. Let's take three hypothetical shoppers:

• Shopper One spends around $100/month at Costco.
• Shopper Two spends around $200/month at Costco.
• Shopper Three spends around $300/month at Costco.

Shopper One will spend around $1200 for the first year, so they won't be able to hit the $2500 mark to be able to make their $50 back from the upgraded membership.

Shopper Two will hit around $2400 for the first year, so they will be close to the $2500 mark.

Shopper Three will spend $3600 for the first year, so they'll easily break the $2500 mark.

Total Cost to Shopper One for the two cards? $50 either way. Total Cost to Shopper Two for the two cards? Again, $50 either way. Total Cost to Shopper Three for the two cards? $50 for the basic, or $32 for the executive membership. (They spent $900 more than the $2500 mark, so they earned 2% of that, which is $18, lowering the total cost of the card by the same)

Think about that for a second: the basic card is basically the same cost unless you spend $3600 per year. It gets better: although the "total" cost is the same for Shopper One and Two, the liquidity trap is far, far worse. Both Shoppers are essentially loaning $50 to costco for most of the year, and then (if they take manual action at the end of the year) getting their $50 back. Imagine if instead of Visa loaning you money, you paid them $50 at the beginning of the year and then they paid you it back, without interest, at the end of the year. Idiotic, right?

The insidiousness doesn't end there: I'm sure most people who fall into Shopper Two's shoes think "hey, what if I spent a little bit more and got beyond $2500...then I'd start to earn even more money!" That fallacy, that the 2% earns anything up to $2500, is dangerous. Costco already targets people who buy in bulk and are diving for "deals" when those deals may mean stale food or loading up on inventory in your house. (How much does floor space cost in your house? Hint: it's not zero!) Plus, if you'd have to spend $900 just to get $18 back...you're not really making a huge dent in your overall cost.

So for future costco members: if you aren't planning to spend $5000 per year at Costco, just stick to the basic membership. You'll be glad you did, and you won't be loaning anyone money for most of the year.

Simply shameful.