Some studies conclude that we spend more when we use credit cards than when paying in cash. You seem fascinating to me, since as many of my readers know and illustrated in this post, credit cards are my preferred means of payment.
That is why in my most recent posts, I have explored a little the subject of psychology applied to our finances since I believe that many of our money problems have to do with satisfying other types of deficiencies. The shopaholics are a typical example of this.
Why do we spend more when paying with credit cards?
Psychologists and behavioral economists have identified two fundamental reasons why we overspend when we use credit cards instead of cash:
We spend more because we do not have the same feeling when paying
The simple act of handing out cash – taking it out of our pocket to give it to someone else – is a sense of detachment that money is getting out of hand. That is, we felt that expense in a very vivid way.
On the other hand, when we pay by credit card, we sign a promissory note. The money, in that case, is abstract: we will deliver it sometime later. Emotionally it is a big difference: we are not feeling that money is getting out of hand. That is why we spend more.
Psychologists call this feeling a “bond” – or coupling in English. In this case, he describes how the experience of consuming something links to the understanding of paying for it.
When we buy an item in cash, our shopping experience to the feeling of paying, when we invite the family to eat at a restaurant, and the bill is several thousand pesos when paying in cash, we feel a sense of pain for the amount we must pay, which is intense and immediate. In addition, this pain is intricately linked to the pleasure of eating with the family. That is, it is significantly related to that consumption because it is experienced almost simultaneously.
On the other hand, if we take out the credit card, although we may feel an inevitable “pain” when seeing the amount at that moment, it is much less intense. The feeling of paying is actually “throwing” into the future. And when we finally pay for it, that experience will not be linked to the consumption that we made; we are unlinking the pain of paying with the pleasure of consuming. That is why we spend more: the experience of drinking and the pain of spending are not linked as they are when paying in cash.
We spend more because we focus on the benefits of what we buy, not on its cost
One of the natural consequences of decoupling the feeling of payment from the pleasure of buying is that consumers tend to overestimate the benefits of that purchase. That is another reason why we spend more when we pay with a credit card.
That is, the decoupling causes consumers to evaluate the benefits without considering the costs.
To give a simple example, suppose we have $500 to go to dinner at a luxury restaurant with our partner to celebrate our anniversary. We cannot take the risk that when the account arrives, it will not reach us. But sometimes, we do not want to limit our partner too much.
In that case, we try to limit our consumption and search among the cheapest dishes on the menu.
When we have a credit card that we know we can use, our behavior changes, it is evident that in this case, we do not have any concerns. We concentrate on enjoying the evening, without the total cost of the account we care too much. Come on, and we are celebrating, so we can even order a bottle of wine to accompany our food.
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