@iShop123 wrote:
Also, people spend more with credit than cash. It can often lead to huge debt.
That's something I gleaned from Dave Ramsey's talk show. It's one of the Ramsey-isms imprinted on my mind, given his famous rants.
It's perhaps a little controversial - as a prescription to use cash - but I've tried using exclusively cash (up to the point until I'm not able to when it comes to paying certain things that have to have credit card), because of his numerous rants on cash vs. credit/plastic.
On average, people spend 12-18% more on their purchases when they use credit cards. Ramsey views that as an impulse tax essentially. Studies of the brain have shown that when we pay with credit card, the pain sensors in our brain are not activated - whereas, they are with cash.
Lots of interesting psychological theories as to why that is...but, his point is that biology is against us when we use credit cards. People impulse much more than they do with debit cards (mild impulse spending) and cash (the least overspending). His favorite example is that when you're at a fast food place and paying with credit card, you're more likely to Super Size the order, get dessert, pay for the guy's meal next to you, etc. When you're using cash, it's the dollar menu and water.
McDonald's numbers bear this out and why they were so happy to let people start using credit cards back when it was not popular.
Credit card companies know all this and spend billions to get people to use cc's. Businesses know it too. They are happy to implement credit card payment options at any chance. Studies show that sales increase dramatically when credit cards are accepted.
Some of the push back I hear is that a person with great self-control can get around this and successfully use a credit card probably and:
a.) get a "free float" on the bill
b.) maybe get rewards points***
***Ramsey frequently rants against those airline miles offered, b/c he says:
i.) something like 95% of all miles accrued never get used
ii.) people overspend often to get them (justifying it in that they're racking up miles) or just subconsciously overspend for psychological reasons (no matter how disciplined you think you are), so it might leave you worse off (esp. if you're spending 12-18% more)
I actually DO NOTICE that I spend less when using cash. I have more guilt. Part of the psychology is that you see your cash leaving your possession. It causes instant pain and triggers your senses on what your budget is, what the value of the money is, etc. When you pay with credit card, it's like money in the ether. Your brain doesn't register pain sensors when you charge it up. And you don't pay until later. So much psychological research has gone into this. It's possibly similar to a person gambling at a casino using chips. The chips dissociate you from the value of money that is there with actual bills. Instead of throwing three Benjamin Franklins in the middle of the craps or black jack table, throwing three red chips is so much easier on the mind. We supposedly feel much worse losing 10 physical $100 bills than ten red chips - despite them carrying the same value.
Having said that, I've been grossed out by physical money lately. Possibly got a rash from some and that's making me think twice.
Edited 1 time(s). Last edit at 12/23/2019 04:55AM by shoptastic.