It has been said that credit cards allow us to given to our desires. This means we often spend more money than we can probably afford due to our handy credit cards in our wallet.
A piece of research completed by MIT looked at whether people spend more money on credit cards, or when they have cash. It was quite an interesting study, as it could really go either way. I know that I personally am worse with cash itself, as I seem to wittle it down to nothing relatively quickly. Saying that though, credit cards let me go deeper than my available cash flow.
So which makes you spend more? Credit cards or cash?
What was the study?
MIT students were given the chance to purchase Celtic tickets at auction; half had to pay with cash and the other half with credit cards. The study found that the students paying by credit cards were willing to pay twice as much for the tickets. Similar results have been found in other studies.
Why do we prefer using credit cards?
Other research from MIT, Carnegie Mellon and Stanford found a possible reason why people tend to prefer using credit cards over cash.
They have found that there is a “pain of paying” attached to forking over cash for purchases. The section of the brain associated with pain processing became activated when participants saw high price tags.
This may be linked to decision making on whether or not to purchase items. When we use credit cards on the other hand it anaesthetises the pain of paying according to George Loewenstein (Professor at Carnegie Mellon and co-author of the paper).
Effectively you don’t feel like you are giving up anything unlike handing over your bills of money hence you are more willing to spend, spend, and spend.
What you need to ask yourself?
The question comes down to whether or not you are stuck in an unhealthy relationship with your little rectangle of plastic.
Ask yourself whether or not you would purchase those items if you were paying for them by cash?
Secondly, do you pay your card off each month? If you do you probably will not run into trouble but if for others who have trouble controlling spending, using cash could have a much more powerful psychological impact to curb your spending habits.