We Buy Fun Stuff With Credit, Dull Stuff With Cash

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It’s well-documented that people cut loose and spend more when they’re paying with a credit card rather than cash. Scientists refer to this as a “decoupling of purchase from the pain of payment” — essentially, we don’t perceive credit cards as “real money.” But a new study takes this observation a step further by postulating that we buy fun stuff with credit cards and necessities or mundane items with cash. As consumers, our brains work in funny ways: We focus on benefits an item offers when we’re paying with plastic, and we focus on the costs when we pay with cash, says Promothesh Chatterjee, professor of marketing at the University of Kansas and lead author of the study, which was published in the Journal of Consumer Research.

“The basic argument is that people are not paying too much attention to cost when they’re paying with credit cards,” he says. “They’re paying more attention to benefits.” This tendency, he says, makes us gravitate towards fun and exciting items or experiences when we’re using credit cards.

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Buying something utilitarian and thinking about how much it costs just isn’t as exciting, he says. The more we do it — and the more marketers and credit card companies encourage us to do so with sales, rewards and other incentives — the more we reinforce a mental feedback loop that has us unconsciously reaching for the plastic when we’re buying, say, the newest e-reader or other “toy.”

This presents a problem, Chatterjee says. Since consumers tend to spend more when using a credit card, and since the kind of “fun” purchases for which we use plastic are, by nature, discretionary, we’re opening ourselves up to spending more on things we don’t really need — especially because we’re not thinking about the cost when we buy these goodies. Americans’ addiction to credit has already led to us revolving hundreds of billions of dollars in credit card debt.

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Chatterjee says that our tendency to not think of costs when we use credit cards could lead to overspending and burdening ourselves with too much debt. “What we want to do is educate the consumers,” Chatterjee says. “Credit cards are a convenient tool. As long as you’re focusing on both aspects — the costs and the benefits — of transactions when you use them, you should be fine.”