Credit Cards Encourage Spending More

A 2001 MIT study published in Marketing Letters found:

In studies involving genuine transactions of potentially high value we show that willingness-to-pay can be increased when customers are instructed to use a credit card rather than cash. The effect may be large (up to 100%) and it appears unlikely that it arises due solely to liquidity constraints.

No wonder Dave Ramsey encourages people trying to get out of debt to cut up their credit cards.

Always Leave Home Without It: A Further Investigation of the Credit-Card Effect on Willingness to Pay [Marketing Letters via Poorer Than You]


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  1. blue_duck says:

    “Credit cards encourage spending more.” Not so much the announcement of the year…

  2. Arlahna says:

    And this is new how?

  3. Akamaru says:

    I believe it. Cash flow has a very powerful effect on your willingness to buy. The illusion of “free money” that credit cards create in the vast majority of American’s heads encourages them to bite off more than they can chew.

    Everyone has been in a situation where they winced while paying for something worth hundreds of dollars in cash, at one point or another. Credit cards act as an abstraction layer.

    Personally I wince when ever I pull out my wallet, so it doesn’t work on me. :-D

  4. Anonymous says:

    It would be interesting to see if there is a difference in the perception of credit cards among different age groups.

    For instance, I’ve had a credit card since college and I almost exclusively it and pay it off every month. I rarely use cash and never use check cards. Yet when I use my credit card I assure you I am viewing that spending cash.

    I wonder my same view is typical of the younger generation and the study applies to an older generation or if I’m just an outlier?

  5. Anonymous says:

    I only have one word to express how I feel about this:

  6. stanfrombrooklyn says:

    I used to work for a credit card company. We found that when a customer switched from a non-rewards card to a rewards card (e.g. miles, points, cash back, etc.) their spending on both essential and non-essential items increased. Groceries, gas, clothing, entertainment, etc. etc. etc. In doing a little research we found that most people rationalize increased spending by telling themselves “I’m getting miles.” or “I get 1% cash back.” The problem is that we found – on average – for every $1 in “rewards” our customers earned, they spent an additional $6. In other words that “free airline” ticket you earned with your credit card cost you about $2000 in extra spendiing on your credit card. Now this isn’t a problem for the credit card companies, this is great news. But my advice to every consumer – and I follow it – is to ditch your reward cards for personal use and just get a low interest bank credit card that gives you no rewards. You’ll spend a lot less money.

  7. UpsetPanda says:

    Poor money management will get you in the hole. Credit Cards is possibly just one of the many express lanes.

  8. vitonfluorcarbon says:


    I’m in the same boat as you. Out of college for about 15 years, using a credit card for every thing I possibly can and always paying the full balance. I know roughly how much is on it at any given time, although I’m sometimes surprised to find something my wife bought. While I will buy things that cost $1000 on the card, I know that I will be writing a larger check at the end of the month.

    But – I can see the point here. Writing out a check that will be nearly immediately cashed for $1000 and giving someone your card and simply signing your signature give me two different feelings. It’s a lot harder to write out the check in my opinion – even if you’ve already mentally made the connection that you are down $1000 when buying the same thing with a credit card.

  9. SadSam says:

    I always (for years) used to use a credit card for day to day spending, paid it in full and loved my ‘rewards’. But, I ditched the cc and now pay by debit card or cash. I find that instead of spending avg. $2000 – $2500 in random spending per month as I did with my cc, I now spend generally @ $1000 a month as I seem to recognize that I’m spending money that I already have earned instead of spending next month’s pay check.

  10. UpsetPanda says:

    @SadSam: Gosh, I’m even trying to back away from spending $1,000 a month.

  11. azntg says:

    @littlejohnny: I don’t think you’re an outlier.

    I’m currently a college student (undergrad) and I also pay as much as I can with a credit card and PIF every time. Call me weird, but I feel the pain more every time I use the card than when I pay cash. Maybe it’s because I meticulously record card transactions while I don’t record anything for cash purchases.

  12. jdotto02 says:

    I feel the same way as you littlejohnny, if I have cash in my wallet I am constantly thinking about where I can spend it and it disappears very quickly, because of that I always use my credit cards for purchases wherever I can. I like reading over the statement at the end of the month so that it’s really easy to see where the money went (i.e. groceries, McDonalds, etc.) The only recordkeeping I can see for cash is which atm I took the money out of.

  13. IRSistherootofallevil says:

    Cash always disappears. When I get money out of the ATM, the minute it goes into my wallet, I assume that it’s not there anymore because in a week, it won’t be there anymore. I used to carry no cash but it’s kind of hard to live in NYC without carrying A LITTLE cash. Now I just carry about $10…enough to cover most emergencies.

  14. FLConsumer says:

    @littlejohnny: I’d not only like to see it by age group, but also by income as well. I have a feeling the people who (mis)use credit cards the most are those who have the least amount of money.

    @IRSistherootofallevil: I feel about the same with cash as you do — it’s too easy to spend. Although I do have to disagree with you about the necessity of cash in NYC. I went an entire month in NYC without needing cash. I will admit that having the client supplying a town car on-call was rather pleasurable and it also eliminated one area where credit cards still are relatively unknown — NYC taxis.

  15. anatak says:

    @stanfrombrooklyn: That is exactly the point that people don’t get, and as Ben said, part of why Dave Ramsey teaches people to stop using them. You’re overspending on credit cards, and overspending =/= spending more than you make. You’re getting 1% back? Big woop. Fast food found that you’ll spend 10-12% more when checking out with plastic, and thus why they all started taking plastic 6 or 7 yeras ago. 5% at the grocery store? 5%! Do you have any idea how quickly you can overspend by 5% at ImpulseMart? If you spent $60 on groceries, then grabbed a Coke and candy bar in the check out line after that marathon of shopping, WHAMO. There goes 5%. People who get off on the $600 they got ‘back’ from Discover last year are the same ones who think they win the lottery every April when they get that tax refund. It was your money to begin with. Only with credit cards, you’d save more than what you’re getting back.

    And don’t give me this ‘cash is a pain’ crap. Did you forget how to count? You’re not more likely to be mugged (to quote Dave, “You’ve been getting mugged at the mall for years!”), and if budgeted out into envelopes, it will give you a much different view of your spending than the picture that Visa is painting for you.