Science has proven that you are stupid with money. Four recent experiments give insight into the irrational ways you use your money that could be chopping down your bank account. My favorite one involves how credit cards make you end up spending more than they normally would:
Students at MIT were offered a chance to buy Celtics tickets at auction. Half were told they must pay in cash; the other half could pay with a credit card.
When all the bids were submitted, the credit card bidders were willing to pay more than twice as much, on average, for Celtics tickets than cash purchasers.
The true value of a basketball ticket is what people are willing to pay for it. But the study suggests that when we pay with plastic, we tend to overspend.
“The loss of cash is an immediate and very concrete event,” Vyse concludes, “but placing an additional debt on a credit card is a more delayed and diminished form of loss,” which makes it easier to accept.
Cash hurts. It’s immediate and real. The pain of a credit card debt is delayed, which makes it easier to incur. Spend with cash and you’ll spend less.
Read the rest at Why so many Americans are broke [Vanguard]
Original MIT Study, “Always Leave Home Without It: A Further Investigation
of the Credit-Card Effect on Willingness to Pay” (PDF) (Thanks to pecan 3.14159265!)