Do We Really Spend More with Credit Cards?
In order to answer that question, we have to look at the behavior of people who use credit cards, versus those who don't. Dunn and Bradstreet did a study which made this comparison, and the results that they found were quite surprising. Statistically they found that on average you will spend 12-18% more when making a purchase with a credit card as opposed to cash. They also discovered that the average McDonalds transaction increased from $4.50 to $7.00. When they looked at vending machines, the average transaction size nearly doubled.
Let's look at the reasoning as to why this might be. One of the reasons could be that credit cards make it much easier to spend money. When you make use of a credit card, all you have to do hand your card to the cashier and sign your name to the receipt. You don't have to worry about if you are spending too much money, and there is no emotional connection that you are letting money leave your possession. When you pay in cash, you have to stop and think about whether or not you will have enough to pay for the rest of your purchases until you go and get more money from the bank. There's an emotional connection between you and your money, and when you let it go, it hurts a bit to do so.
With credit cards, you are also much more likely to make large impulsive purchases. This is because you have access to a lot more money right away than if you were only carrying cash around. You might carry around $50 with you if you paid in cash, but with a credit card, you have a $10,000 limit or so for purchases! You can buy what you please on the spot. With cash, you have to go down to the ATM or bank and take the money out.
Many people who are strong defenders of credit cards will state that they still think using a credit card is a good idea because they can control their purchases, and this is all well and good if they can actually do this. However, knowing these statistics, carrying around cash appears to be a much more viable option.
Published by Matthew Paulson
I am a very busy undergraduate, I'm involved with nine different campus organizations and work five different jobs. Most notably, I am the editor-in-chief of DSU's Trojan Times. View profile
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- Dunn and Bradstreet did a study to determine which group spent more money, credit card users, or people who pay with cash.
- Dunn and Bradstreet found that you will spend 12% to 18% more when you pay with a credit card compared to cash.
- Credit cards make purchasing very easy to do, and it does not register emotionally that you are losing money.
5 Comments
Post a CommentThis article makes it sound like people go on splurges. Some do, but not everyone. What really happens is that people use credit to buy expensive things and pay them off over time. I used a CC to buy a bed. There was a 12 month grace period with no interest. I paid it off in around 9 months. Therefore, I used around 1500 that I didn't have in my checking account. Access to credit increased my spending.
The Dun and Bradstreet study doesn't actually exist. A researcher contacted D&B and found no record of it. It appears that Dave Ramsay, the personal finance "expert" who most often cites this mythical study, has actually misinterpreted an article that appeared in the March/April 1993 issue of D&B Reports. (More information about this can be found on the Get Rich Slowly blog entry for April 27, 2010.)
I think this article along with the study is utter rubbish. People jump to conclusions way to quickly. Correlation does not equal causality. Just because higher spending and use of credit card happen together it does not mean that credit card use CAUSES higher spending. It might be that higher spending CAUSES credit card use. Or something, a third unknown causes BOTH higher spending AND credit card use. These folks should really stat reading Freakonomics.....
Did anyone ever find this Dunn and Bradstreet Study?
Where is this Dunn & Bradstreet study? I have never been able to find it, only myriad quoted that reference it.