New Study Shows Why We May Spend More With Credit Cards

November 22, 2011, Written By Lynn Oldshue

One of the most common money saving tips for consumers is to pay with cash instead of a credit card. Common sense and behavior analysis says you spend more with a credit card because it doesn’t hurt. After all, it is somewhat painful to count out your hard-earned cash and hand it to someone else.

A new study from the Journal of Consumer Research sheds further light on why we overspend with credit card payments. It may even help shoppers stay on their Christmas budgets.

The study, “Do Payment Mechanisms Change the Way Consumers View Products?”, shows that paying with a credit card increases the natural desire to spend as opposed to cash in identical purchase situations. It describes how perception and evaluation of products differ with cash compared to a credit card payment.

Consumers paying with a credit card are much more focused on the product benefits, and make a purchase based on superior benefits instead of the cost. They identify more with words that describe the benefits.

Consumers that pay with cash are more likely to choose an option based on cost, even if that option offers inferior benefits.

Not only do we spend more with a credit card, but we may not make the best purchase decisions when we pay with plastic. We may get caught up in the benefits promised in the advertising or possibly overestimate what we can get from the product. Plus, we buy things we don’t need. This is likely magnified during the holidays. At this time of year, consumers may save more money and think more clearly when they pay with cash.”

Credit card payers not only distort the benefits, they also make recall errors related to the costs. The study says it is harder to accurately remember the price if you pay with a credit card.

Consumers must remember that when we use a credit card for a purchase, this is real money coming out of our bank account for payment. The forms of payment may change, but the rules of budgeting and spending what you can afford will always stay the same.

“Do Payment Mechanisms Change the Way
Consumers View Products?”
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The information contained within this article was accurate as of November 22, 2011. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.


About Lynn Oldshue

Lynn Oldshue has written personal finance stories for LowCards.com for twelve years. She majored in public relations at Mississippi State University.
View all posts by Lynn Oldshue