Studies show that people who use plastic spend more than those who use cash?

[Eagle]

1. Are there studies show that people who use plastic spend more than those who use cash? Interested in links discussing this too.

2. Do you think you spend more using a plastic card (debit or credit) than if you were to use cash?

[disneysteve]

I think we've covered this repeatedly.

Yes, there are studies that show people spend more with credit cards.

No, I don't believe I personally do. In fact, I think I spend more with cash because there's less accountability and it's much harder to track spending.

Statistics can be massaged to show pretty much anything you want them to show. Keep that in mind when looking at studies. For example, one of the studies that people often point to on this topic was done at McDonald's. Think about that. Is your average McDonald's customer the beacon of fiscal responsibility?

[Eagle]

Here's some of what I found so far:

A 2012 study by Promothesh Chatterjee and Randall L. Rose observed that consumers who use credit tend to focus on the product’s benefits as opposed to their costs. Meaning a higher cost product is less painful to buy and more attractive when you use credit vs cash.

https://www.researchgate.net/publication/239810637_Do_Payment_Mechanisms_Change_the_Way_Consumers_Perceive_Products

[Eagle]

And here's another:

A 2001 study by Drazan Prelec and Duncan Simester had the authors tell randomly selected participants in a study that they would be offered the opportunity to purchase tickets to an actual professional basketball game that had just sold out.

These tickets were highly desirable. Participants were told either that they would have to pay in cash or that they would have to pay by credit card. Those who were told they would have to pay by credit card were willing to pay more than twice as much on average as those who were told that they would have to pay by cash.

http://web.mit.edu/simester/Public/Papers/Alwaysleavehome.pdf

[Eagle]

I also found The Realities of Spending (also available in PDF according to the link). This study examines the psychological reasons why a person might spend more using a credit card.

Some things to be gleaned from The Realities of Spending:

~ Adding a $30 expense too a $637 credit card bill makes the $30 expense seem smaller. Grouping transactions on a credit card bill makes the size of individual expenditures seem smaller, which increases spending.

~ Thinking about the cost of a purchase while consuming or using it can lower the pleasure gained from the purchase. Credit cards block this by disassociating the payment from the consumption – in other words, you don’t feel the pain of paying for something while using it if you use your credit card.

~ This works the other way as well: the pain of paying can be cushioned by thinking about the benefits of the purchase. This is why it’s easier to put “things” on our credit cards instead of “experiences” – while we’re paying off our credit card, we can think of all the enjoyment we’re still getting from our iPods, HD TVs, and that cute little robot vacuum cleaner.

~ Credit cards provide the most “decoupling” of payment and transaction out of all the payment methods. In other words, you buy now and pay later, and so act of buying and paying become “decoupled” in your mind. Credit cards do this in a number of ways:

*The increased period of time between when you make the purchase and when you pay the bill.
*Grouping many different transactions into one bill.
*A great diversity in the types of transactions can also reduce coupling – so if you buy gadgets, food, gas, and a range of other things on your card, it will reduce coupling for all those purchases.
*You don’t see actual money leaving your hand, you just write your signature on a piece of paper or on a little screen.
*People generally have a low recall of what they’ve paid for with their credit card.

https://www.researchgate.net/publication/257618988_The_Realities_of_Spending

[Eagle]

I think we've covered this repeatedly.

Yes, there are studies that show people spend more with credit cards.

No, I don't believe I personally do. In fact, I think I spend more with cash because there's less accountability and it's much harder to track spending.

Statistics can be massaged to show pretty much anything you want them to show. Keep that in mind when looking at studies. For example, one of the studies that people often point to on this topic was done at McDonald's. Think about that. Is your average McDonald's customer the beacon of fiscal responsibility?

I guess there's always exceptions and I personally can relate to spending more with cash. I was just more curious of actual studies out there.

For example, this link from the Simple Dollar. "My Ongoing Battle With The Cash In My Pocket" by Trent Hamm

"One of the biggest psychological weaknesses I still carry with me, even after my financial turnaround, is the desire to spend the physical cash in my pocket. I have no problem keeping the credit cards in check, but if I have loose cash in my pocket that’s not perfectly accounted for, some little devil pops up on my shoulder and whispers all sorts of bad ideas in my ear. The next thing I know, the cash in my pocket vanishes and I suddenly only have something entirely unnecessary to show for it."

http://www.thesimpledollar.com/my-ongoing-battle-with-the-cash-in-my-pocket/

[corn18]

I guess you found a lot of information after you posted your question. A setup perhaps?

I spend way more with a credit card than I would with cash because I can't / won't carry that much cash around. What's the point? The stupid shall be punished. Just like people who play the lottery. Some would say they are being exploited. I say they are being stupid.

[disneysteve]

~ Credit cards provide the most “decoupling” of payment and transaction out of all the payment methods. In other words, you buy now and pay later, and so act of buying and paying become “decoupled” in your mind.

I find just the opposite to be true. When I think about how much money we have, I don't include cash on hand. That money is already gone in my mind. It's "spent" the minute it leaves the bank account. With a credit card, however, I'm very cognizant of the fact that whatever gets charged to the card still needs to be paid for from our account when the bill comes.

I wonder if any studies have looked at if the people involved pay their credit card bills in full each month or just make minimum payments. I think that could greatly alter the outcome.

I guess you found a lot of information after you posted your question. A setup perhaps?

You think?

I spend way more with a credit card than I would with cash because I can't / won't carry that much cash around.

Well that's certainly true. Any significant purchases are always made with a credit card because I don't walk around with hundreds or thousands of dollars in cash.

[bjl584]

I disagree. At least, personally. The majority of my spending is debit/credit, but I watch over my budget like a hawk.

I can see someone getting out of control swiping plastic. A quick search and there are plenty of threads where someone is seeking help for their $10,000, $20,000, or more in credit card debt. Almost every thread starts out as "I don't know how this happened......." So, yeah, I agree that it happens. But, not in my case.

[sv2007]

1. Are there studies show that people who use plastic spend more than those who use cash? Interested in links discussing this too.

2. Do you think you spend more using a plastic card (debit or credit) than if you were to use cash?

I think I'd spend about the same. Certainly makes online buying a lot easier, which means I can easily compare/access more prices from different merchants which should drive down my prices. So, it can even be thought of as saving me money (even w/o considering the rewards from CC).

[LivingAlmostLarge]

Oh boy am i not a cash person. My DH and I will take out say $80 cash and then we have literally no idea where the money went. Maybe a snack, a meal, or something and it's gone. Cash is so bad for us.

We might be able to manage grocery shopping but even then I'm not the greatest. I'm more hesitant to spend cash on groceries so instead I would end up not spending as much but then needing it the next month. But as a extra it's water through my fingers. I can't carry cash I'm too easy to just blow it.

[Petunia 100]

1. Are there studies show that people who use plastic spend more than those who use cash? Interested in links discussing this too.

NO. There are studies which show a correlation between amount spent and method of payment. Correlation is not causation, a basic principal of statistics.

Consider two scenarios:

1. I wish to purchase a pack of gum. I take some change from my wallet and purchase it.

2. I wish to purchase a new refrigerator. I save up for 6 months, wait for a sale, go to the store to make the purchase, and pull out my credit card. When the bill comes, I pay it in full.

These are very common scenarios. They do indeed show a correlation between amount spent and method of payment. But, can you correctly conclude that I spent more on the refrigerator because I used a credit card? No, I did not spend more because I used a credit card. It's the other way around. I used a credit card because I spent more. (I don't want to carry that much cash in my wallet, and I do want the additional consumer protection that automatically comes when using a credit card).

[disneysteve]

NO. There are studies which show a correlation between amount spent and method of payment. Correlation is not causation, a basic principal of statistics.

I agree, however the well known McDonald's study is different. They saw their average bill rise from $4.50 to $7.00 when they started accepting credit cards.

Still, one can debate what that means. Were the same people spending more or did people who don't carry cash start going to McDonald's more?

As I said, stats can be manipulated and interpreted in many different ways depending on the goal of the researcher.

[Petunia 100]

And here's another:

A 2001 study by Drazan Prelec and Duncan Simester had the authors tell randomly selected participants in a study that they would be offered the opportunity to purchase tickets to an actual professional basketball game that had just sold out.

These tickets were highly desirable. Participants were told either that they would have to pay in cash or that they would have to pay by credit card. Those who were told they would have to pay by credit card were willing to pay more than twice as much on average as those who were told that they would have to pay by cash.

http://web.mit.edu/simester/Public/P...sleavehome.pdf

That is not the statistical meaning of random. Random means that every piece of data in the population has an equal chance to be chosen to be included in the sample population.

What this study is doing is selecting people (not randomly, because at the very least the people have to agree to participate in the study), placing them into an artificial situation (which skews the outcome), and then observing their behavior. That is all well and good. But to then take the results and extrapolate onto a different population is completely invalid. There is just no other way to say that. Data has been chosen from the population "people who agreed to participate in this manufactured scenario". Data has not been chosen from the larger population of "purchase decisions people make, of their own free will, when no one is looking".

ETA: Data must be randomly chosen for the results to be statistically meaningful. This is another basic principal of statistics.

[Nika]

I agree, however the well known McDonald's study is different. They saw their average bill rise from $4.50 to $7.00 when they started accepting credit cards.

Still, one can debate what that means. Were the same people spending more or did people who don't carry cash start going to McDonald's more?

As I said, stats can be manipulated and interpreted in many different ways depending on the goal of the researcher.

It could also be that this segment of the population are the ones that are low on cash and they find out they can spend more if they don't have to pay right away, so the check goes up.

Higher earning people think more in terms of total numbers, not in terms how much they have left until next paycheck, so they would not be influenced by credit vs. cash. And McDonald's main customer base tends to be overwhelmingly working class/lower earning. So I don't really see a value in this study.