wait, this is new?

Credit cards cause people to spend more than using cash. In fact, having a store-branded credit card triples the amount people spend at a particular store:

[consumerist.com]

@ConsumptionJunkie: There is zero evidence of a causal relationship there. People may get store brand cards BECAUSE they shop at a place a lot.

Likewise, Ms. Singletary doesn't understand the statistics she's talking about and overstates her case in order to reinforce her anti-credit bias. She's an idiot for thinking that things these things apply universally. Statistically, yes, this may be true. But statistics don't apply to everyone, by definition. She seems to think they do.

This is similar to how people claim that credit cards make people spend more based on data that shows that credit card purchases tend to be larger than cash purchases. That ignores the fact that many people simply don't want to carry enough cash around to make larger purchases in cash.

Again, the problem is not credit cards. The problem is overspending. People need to be disciplined about where they spend money by tracking their purchases carefully.

The people who voted for the first option are missing the point. Even if you keep track of what you spend with a card, you are still going to spend more, whether you keep track of it or not. It's a psychological thing. You see debt increasing, but seeing debt/liabilities increase is not the same as seeing cash decrease.

@johnva: Again, the problem is not credit cards. The problem is overspending.

End of story.

I was going to disagree with this article and then it struck me that after some thought, it's true.

My wife and I use our Amex to purchase gas, groceries and just about every other purchase except restaurants (we always pay cash). We budget very carefully, and we always are putting away quite a bit of money each month.

We never go the store without a grocery list so we're not splurging there. We're careful not to get enticed into expensive cheese and crackers at Costco, but the one thing that agrees with the author's premise is gasoline.

When we buy gas, we always fill up. And since there's pretty much plenty of fuel on the weekend, we don't even think twice about how we drive. Need something for a project? Drive to Lowe's. Kid needs to go the library? Ok, let's go. If we saw the cash flying out of the wallet instead of seeing the gasoline bill combined with groceries, I'm sure our driving habits would change.

Yesterday, I was puzzled at how my wife piled on 26,000 miles on her car over the course of a year. Now I know...we doesn't see the true cost, there's always fuel so what's the problem?

I guess in my case, the argument is true.

@johnva: Those are excellent points.

Also, in some cases you're a sucker for NOT using your credit card. I get 2% back on my credit card for paying my utility bills and gasoline purchases. These are expenses I would have with or without a credit card, so at least I'm getting a little back now. The utility companies sure don't take 2% off my bill for paying cash. Sure, 2% isn't much, but it certainly adds up and since I pay my bill in full every month I have no interest payments.

For me at least, my credit cards cause me to spend less. I pay for everything possible with plastic, and then pay my bills of each month, but I'm not in the same mindset as most people. When I hand over the card in the store, I feel like I'm paying once, and then when I pay my bills at the end of the month, it feels like I'm paying twice. Now I know I'm not really paying twice, but because of that feeling, I found that my spending went way, way down with using credit cards.

Now it may be because I keep a register of credit card purchases like most people do for their checking accounts, but I think plastic is the best. For me, cash is impulsive. Got a $20? Sure waste it on a coffee. But is a $5 cup of coffee really worth putting on a credit card? Thats another receipt I'd have to save, and another purchase to put in my register, so I find that having a credit card keeps me from making impulse buys more than it causes me to make them.

@zentec:

Doesn't=do not. Sorry, it's the weekend.

where is
E: I do not use credit cards. to do so is approving of credit industry setup, fees, behavior.

I do NOT approve of where the credit industry has led us in America. They want EVERTHING in transactions to be digital and dividend of those transactions paid to them. By controlling and maintaining credit reporting agencies, they have us under control. all they have to do is push a few buttons on keyboard and many people's finances could be halted. They can't control cash.

She's right to a certain extent, but for me it hurts as much on the card as it does charging it. Ultimately it all depends on how you handle the receipts and the bill that comes at the end of the month. If you only skim your bill and write the check blindly, then chances are yes you are the type of person that spends more on their card.

For me, putting something on a credit card is MORE painful than other methods because I have the overwhelming feeling that I'm paying with money that isn't mine. That's why I voted for #1.

I don't use credit cards simply because I refuse to let my financial life be ruled by three private companies. I have cash, and I can control what I can and cannot buy, instead of the credit bureaus telling me.

And I save a hell of a lot of money by not paying interest on anything.

@TheKingBoar: I agree. I definitely think I'm more disciplined spending money on cards than I am with cash. More often than not when I'm carrying cash, I end up being too lazy to properly account for where I spent all of that. When I use a credit card, I can simply download that into Quicken. Then (and this step is crucial), I go back and look at where I spent money during the month. If some category seems like it's higher than normal or getting out of control then I figure out why and consciously change my habits. But then again other people probably don't think like me; I'm pretty numbers-oriented in general. I will concede that this article's premise may be true for some people. I'm just annoyed at the abuse of statistics in order to draw a conclusion the "journalists" have in mind ("credit cards = evil").

@aaron8301: Credit bureaus don't "tell you what you can and cannot buy". And many people who use credit cards never pay interest in anything. I sure don't, and I wouldn't use credit cards if I was.

I try not to use my credit card unless I have enough cash in my bank account to do an immediate transfer when I get home. It gives me greater flexibility with my money, as if the products I purchase do not work, or the services I purchase are not rendered or up to par, I have the ability to apply leverage via a chargeback. You don't get that if you pay with cash.

i refused even having a debit card for two years--only paying in cash and check. it reduced my spending a lot. when i felt i had control of my account and myself (i had been overdrafting a lot when i was younger due to the convenience of a card), i got a debit card again.

credit cards do make it easy to overspend also. i keep one with a small limit that i use for online payments. its linked with my credit union so i can easily see my transactions and my spending when i go online to check on my checking and savings accounts.

its not about the object (the card) its about our spending habits with the card that are bad. when we learn control then the credit card is a good thing.

This is why I have a debit card (with the lovely "Visa" logo) from my credit union... I CAN NOT spend more than I have. I have no credit cards.

I know people will complain that debit cards have problems, but I haven't had any problems yet (going on several years now) with my debit card, and I went nearly bankrupt (via my own stupidity) when I had credit cards.

My credit union has never given me grief as with chargebacks as some people with debit cards have reported.

I generally accept this as true. I use my credit card for everything. And expect to spend a bit more than if I had only used cash. But i figure it is worth it considering the convenience of use & the cashback rewards combiined. But I still keep it under a certain amount (roughly $500 a month).

@pigeonpenelope: Yes, I agree. It's all about the spending habits. Can a credit card make a problem with overspending worse? Unquestionably YES. Can a credit card be a useful tool if you are disciplined about your spending? Yes again.

@forgottenpassword: I don't accept it as a true at all, for me. The message of this article seems to be that people are just slaves to their credit cards and aren't capable of spending rationally once they get that power. That may be true of some people, but it's not true of me. The use of statistics to claim it's true in general is quite deceptive, because the statistics could be true even if the premise were only true for some people. I would have a lot more respect for the article if Ms. Singletary would not use wording like "without fail" people spend less with cash and would acknowledge the limitations of the conclusions that can be drawn from statistical data.

Any casino worker could have told you this a long time ago. Convenience isn't the only reason they nearly force you to use chips at the tables (and credits at the slot machines). No, there's also a psychological benefit to the casino. You're no longer playing with cash; you're playing with plastic. Who cares about losing a stack of plastics chips with fives written on them?

As much as I willingly confess that I'm already living a "cashless" lifestyle, I wonder how much wealth I may have gathered had I paid with greenbacks whenever possible.

If I take a bunch of alcoholics to a bar they are going to drink more than if I take them to the zoo. This is news?

I thought this was about Mike Singletary telling me I'm a sucker.

I'm like "why is an NFL hall of fame linebacker telling me how to use credit cards--and why does he have a financial column"

@KassiaIdomeneus: "Researchers have found that people's willingness to purchase more products or services increases with the use of plastic."

SOME people. Not all of us. As Johnva said:

@johnva: "But statistics don't apply to everyone, by definition. She seems to think they do."

Exactly. And we have this discussion every time whether credit cards are teh eeeeeevil comes up on Consumerist.

For me, the psychological moment is when the money leaves my account or mental balance sheet. That means once cash is in my pocket, I just SPEND it, since it's already off the books and it's already mentally been "spent" by withdrawing it. A credit card I feel the pain every time I pull it out becuase I'm like, "There's another $26.50 coming out of my savings." (Even though that doesn't happen REALLY until I pay the bill, but MENTALLY that's how I feel.)

And I've done her experiment on a small scale -- some months I get a little cash to keep in my purse for things like lunch out, just for convenience. The months I do that, I spend easily twice as much on impulse food as I do in months where I have to use my credit card for impulse food. It seems like every afternoon, if I have greenbacks, I can think of a reason I just HAVE to walk down to the cafeteria for chips and a soda, or a salad, or a bowl of their excellent ham soup ... . If it's credit card, though, I've got to be STARVING before I'll give in.

@witeowl: Umm, I would care just as much about losing the chips as I would a stack of fives. I don't have a magical psychological attachment to paper money that I don't to other things that are worth just as much.

Like I said, the fallacy here is overgeneralizing from the data that is actually available. What you and Ms. Singletary are saying may be true for some people, but it's not true for everyone. I suspect that the distribution of how people use credit cards is very skewed into several groups.

The only reasons I use a credit card is because
1) Its safer than carrying cash around
2) It's a pain in the ass to get change and put it back in my wallet.
3) All my expenses are kept track of easily and I can quickly find out what I spent on what day and where (I put all cash expenses into my PDA)

Iono, keeping track of everything electronically seems to be easier for me.

I was thinking about this, and maybe it's an old vs. young thing. Older people might actually have the "magical psychological attachment to paper money" I was referring to, simply because it's what they used most often when they were young. So for those people, maybe it's true that using plastic doesn't feel like spending "real money". For me, I never used cash heavily in my life. I started out with a debit card and then changed over to credit cards for everything. So I'm wondering if that could explain a lot of this difference of opinion. A lot of the non-Internet media is very biased towards Baby Boomer perspectives, so maybe that explains Ms. Singletary too.

BS. I treat my credit card as an extension of my bank account. I spend X and subtract X from my budget. I pay it off way before its due and I get free (yes free, I've been unable to find the catch, except for if I were to let a balance build up and I had to pay interest) Amazon money when I use the card.

I never use cash because it is unsafe. If I lose cash or get it stolen I'm screwed. If I lose my card I cancel it and I'm good to go. A small inconvenience.

We enjoy using a credit card because that means more points, which means more rewards. If I have a choice of buying something with either check or credit card, I always choose CC. With big ticket items, such as my car insurance, this means many more CC rewards.

@HaloZero: "All my expenses are kept track of easily"

Yes, I also find that when I do credit-only spending, seeing that bill at the end of the month with EVERYTHING AT ONCE on it makes me very aware of what I'm spending all month long. With cash it just keeps flowing out the door and there's never a big accounting that goes, "Dude, you just spend $900 this month." With cash it's just $60 here, $20 there, nothing that's all, "Look at how much you spent on groceries!"

I can do this, obviously, with my budgeting program, but the psychological impact of the credit card statement is just different for me, and keeps my spending under a much tighter rein.

I switch to all-cc spending when I got married, very reluctantly, at my husband's insistence. I was SHOCKED how much less money I spend when I was all-cc instead of all-cash.

But I would never advocate such a thing for everyone, because obviously everyone's psychology of spending is different, and for some people it's the credit card that's the magic free money that doesn't count. For me, it's just that the cash in my pocket is already spent in my mind, so it doesn't matter how much of it I spend. I think really the key is figuring out your relationship with your money and then building your money management system around ways to psych yourself out.

It's not like there are a lot of alternatives. If you don't use credit cards you don't have a credit score.

Mine pay all of my automated charges every month, so it's a fairly fixed amount. I just pay it off at the end of the month.

@Eyebrows McGee: Yep, I totally agree with you that spending psychology is very different for different people. For me, money is just an abstract number in my account, not a tangible thing (maybe because I've never used cash much). For other people, maybe it doesn't seem real unless it's a physical object. The unspoken premise of articles and research like this seems to be that everyone has the same psychology about money and personal finance. I don't think that's true at all.

@zentec: There's probably a little more to it than the author lets on. There's actually two major forces at work that 'prove' the result.

First, and probably most relevant, is that credit cards are a layer of mental separation between you and your money. A parallel example is how casinos won't allow you to gamble with cash directly - only chips (there are other reasons for this in a casino, but it's one of the selling points). When you deal with your money in an abstract manner, you lose a little mental control.

Second, it's FAR more convenient to pay with a credit card than to pay with cash. There's no counting, no waiting for change, not worrying about whether or not you're carrying enough for a given errand, etc. You have a whole wad of 'money' available to you in an instant - no waiting.

Personally, I go cash-less most of the time simply because it's convenient. Getting cash from an ATM or at the bank is an extra trip I generally don't need to make since most places take my credit or debit cards. It's also worth noting that I carry a pair of $20 bills in the deep crevices of my wallet for emergencies - out of sight when I open it so I don't get the urge to use them. Also, my wife and I are reducing some bad debt we got into a year or so ago. We're doing remarkably well without having to resort to cash-only spending.

@johnva: "But statistics don't apply to everyone, by definition. She seems to think they do."

Soooo, you should'nt walk the batter with men on second and third with 2 out? C'mon...

@johnva: The only way you can get a causal relationship is by doing a true experiment which in any applied field (such as consumer psychology) is virtually impossible. In qualitative, quasi-experimental and the like, you look for correlations because there really isn't a way to control for every confounding variable out there. And my guess, is that the MIT study talks about this but the blog didn't. There is a correlation between spending more and using plastic. Just because this doesn't apply to you or to 100 or 1000 people doesn't mean there isn't a valid correlation. This isn't a review of an article, so it has been simplified because most people, including you, don't know what alot of it means. My concern would be if the researchers themselves misrepresented the data. That is where the problem would lie. Not in some blogger talking about some research that she probably read about second hand on a site like BoingBoing or Digg. *sigh*

I call BS. Perhaps I'm unusual, but I cannot recall a situation ever in my life in which I've spent more because I had the credit capacity of a card in my pocket. Then again, I can think of only one time in my life that I've carried more than a zero balance at the end of a month (it was during a move and completely oversight on my part).

Given that, and the fact that my credit card of choice is my costco american express with cash-back bonuses on purchases, they actually pay me $150-250 to use their card each year.

In fact, I rarely have more than $25-30 in my pocket. It keeps my wallet slim (a fat wallet looks dumpy and can cause back problems from sitting on it all day) and contrary to the article, I don't put much thought into spending it. It usually goes faster than the same amount my card.

I'd love to see everyone who chose "I can control my spending!!!" to participate in the Stanford Prison Experiment (or a behavior experiment like that, but not as notorious). If people had as much control over their behavior and understood their catalysts as well as they think, psychology wouldn't exist.

@thelushie: So, I should walk that guy!

and I forgot to say before:

I got the car about 6 weeks after I got my bachelor's degree (which was about a month into my first "real" job) and in the subsequent 3 years since then, between the constantly paid of cards and a 2-year-old car loan with almost a whole extra year's worth of equity chipped off, my FICO is somewhere in the 780's and continually rising. This might just be the year I buy a house.

@dangermike: "but I cannot recall a situation ever in my life in which I've spent more because I had the credit capacity of a card in my pocket."

Nobody is suggesting that people go to a consciously think, "Well, since I have a credit card, I will buy more crap I don't need!"

And with the cash-back deal with Costco AmEx, you may actually be buying more than otherwise (of course, there's no real way to know since there's no way to create a control sample for your particular case).

I'm in the same camp as the pro-credit card group. My personal experience is that I actually spend less when I use my credit cards on impulse purchases than when I do the same with cash.

See, when I pay by card, I keep all my receipts and maintain a meticulous record on a database (and double check them against the monthly statement). The sum total is aggregated on demand and then it's... ouch! I spent $300-something this month? Okay, better try to cut it back to $250 next month. And so on.

As of cash, sure I notice my green pieces of paper and the god heavy sack of coins physically disappearing as I spend it. But I personally have a harder time keeping track of how much I spent at the end of the day. Sure, I could meticulously record like I do for credit card purchases, but I find it much more cumbersome and difficult to do so with cash purchases.

Also, I don't feel compelled to stick to a stricter budget when I pay by cash, as my mind has an "Okay, I can spend as much as I'm carrying with me" mentality while when I use a credit card, it's more like: "Oh crap! $15 more and I'll hit my monthly budget limit."

I do know several people however, that would benefit more from cash-only spending. I just feel like I'm not one of them.

Long story short, I think Michelle Singletary is a sucker for making such a broad assertion that covers everybody on a subject that may or may not apply to everybody! Credit cards have their uses.

I use my credit cards to my advantage, big ticket items and only what I want. The advantage, the extended warranty. and if i schedule my payments right. I get to collect some interest too!

Shouldn't we think about the flipside of this as well? Assuming you did spend less using only cash, as an economist I would have to point out that you WILL be experiencing less utility. There's always the tradeoff there and ultimately, most Americans choose to satisfy shorter term wants and needs over long term. This would merely shift short term to long term and leave you feeling poor.

Besides, I've tried it both ways and found it to be not the case. And I would rather pay less on mortgages and various debt instruments that I need later than pay more because I decided to opt for cash/not build credit.

@thelushie: I never said the correlation didn't exist. I was saying that there are many potential explanations for that beyond just "credit cards make you spend more". My problem is not with the study that collected the data, but with the speculative conclusions being drawn by the reporter. Ms. Singletary titled her post at the WaPo on this "Credit Cards Cost, No Matter What". She clearly doesn't understand what she's talking about making a statement like that (or doesn't care). Reporters misrepresenting or misconstruing the results of a study is a huge problem. I'm still not sure if this is because reporters tend to be dishonest or if it's because they are poorly educated. Either way, I'd prefer they not report on science (and quasi-science) if they can't get it right.

It took time but I don't abuse my credit cards.

Why is this on the consumerist. Rememer one of the consumers best weapons. The ChargeBack. You can't do that with cash.

I didn't learn to control my spending until I stopped using cash and put everything on my credit card. When I use cash, I don't keep track of where I'm spending it and when I run out, it's just a quick hop to the ATM for a little bit more. Another way using credit has helped me control my spending is that when I see a sign by the register that there's a minimum purchase of whatever amount, I usually walk out.

Added bonus is that I now have enough frequent flier miles to spend a few days in St. Maarten.

I can not even remember the last time I made a big purchase with Cash. If anything I am going to but is over $100, Im going to use credit. There is no protection with cash.