Spending More With Credit Cards Than Cash: It Doesn’t Apply to Everyone
Author: Nick
Category: Money
Topics: budget, credit
It is widely known that people tend to spend more with credit cards than if they use cash. Supposedly this is because you can “feel” cash leaving you.
From a scientific perspective, the paper bills passing through your hands release tiny particles found in the ink used to print money. Those particles travel through your bloodstream, sending a signal through your nerves straight to your brain which responds by releasing chemicals that make you feel remorseful (see diagram, top). The plastic of credit cards does not cause the same biochemical reaction, so you don’t get that feeling of regret (see diagram, bottom).
Okay, I just made up all that crap. But it’s still generally true that most people spend anywhere from 10-30% more when using credit than when paying with cash.
But I’m not most people.
As I’ve discovered in the last week, I tend to spend more when using cash than when using credit cards. And I think I know why:
- Cash tends to come from “nowhere.” I rarely have cash in my possession. If I ever do, it’s not on purpose. Usually it’s a gift or it comes from selling something I don’t need. I view it as extra money, so I’m more inclined to spend it on frivolous things.
- Cash doesn’t make it to my books. Because of the way cash typically enters my possession, I almost never log it in my personal finance tracking application of choice. And I don’t log receipts for transactions I pay in cash either. Thus there’s no line item in my monthly spending report to make me feel guilty for spending $60 in cash on two hot dogs at a baseball game.
- I don’t like cash. Cash takes up precious room in my wallet, and it invariably spawns something I hate even more: loose change. The sound of coins clinking in my pocket–ugh, it sends shivers through me. Perhaps I spend cash quicker because my subconscious is working to get rid of it faster. Of course, I could just deposit it in the bank, but going to the bank is another thing I don’t like doing.
So do you fall into the typical behavioral pattern of spending more with credit cards, or do you part with cash easier like I do?
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76 Responses »
1.
plonkee
August 17th, 2007 at 4:01 am
I also spend more with cash. I just seem to have a compulsive desire to let it leave my wallet.
2.
Jonathan
August 17th, 2007 at 4:36 am
I definitely spend cash faster. If I use a credit card I know it’s being recorded somewhere. Big Brother helps me budget!
3.
Lauren
August 17th, 2007 at 12:08 pm
I used to have that problem where cash flew out of my wallet but over time I grew to have a large aversion to change as you described. So now cash generally stays in my wallet until i go deposit it and I use my debit card for most purchases.
4.
kitty
August 17th, 2007 at 2:59 pm
I also spend more with cash. Once I take cash out of an ATM I consider the money “already spent” whereas whenever I take out a credit card I know that it’ll increase the bill I’ll get at the end of the month and will still have to take out of my account.
Nowhere this is true more than when during vacations abroad. Once the money are converted into foreign currency, they just melt.
I am wondering if “people spend more with credit cards” studies come from people who carry balances. Someone who spends “a lot” more with credit card (which would apply to anybody who spends more than he has) will have huge impact on the averages. I would bet money that if they took only the people who pay balances in full, the conclusion would be vastly different. The thought of having to write this one big check all at once is a pretty big deterrent.
5.
Lord
August 17th, 2007 at 5:11 pm
My decision is made at the counter, shelf, or when ordering. Method of payment is irrelevant. Cash is more convenient for small items. Credit for larger ones. The only difference is pay now or pay at the end of the month. I prefer pay once, so I avoid debit cards.
6.
Jeremy
August 22nd, 2007 at 9:08 am
I was a waiter for years and unlike most of my co-workers, I never spent the money I just made. Even if I went out after work, I’d always pay with my check card. Besides having a record of how much money I was spending, I also get frequent flyer miles. In fact, I don’t feel like I actually have money until it’s deposited in the bank. (i.e. if I have a thousand dollars in my pocket and ten in the bank, in my mind I only have ten dollars). I just moved to New York City and the thing that’s been really hard to adjust to is the number of “cash only” restaurants.
7.
The Credit Card Blog
November 27th, 2008 at 12:29 pm
Nick I’m the exact same way! I spend MORE with cash than with credit cards because cash to me is like money that doesn’t count (vs. the money in the bank which is allocated to paying my credit card) so to me cash is like free money that hasn’t been allocated yet so I can spend it how I wish…. we’re both really bad for our warped thinking like this lol
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December 16th, 2008 at 12:53 pm
For my part, I tend to leave my cards home because i find that i spend more with them. Although I consider myself disciplined, there’s always that one other pair of shoes, or hammer, or groceries that i just couldn’t do without.
9.
Todd Beardsley
January 26th, 2009 at 12:00 pm
It’s definitely a psychological effect that causes us to spend more when using a credit card. I feel that I spend less with cash because I can physically see my money leaving my wallet. After it’s gone I can look in my wallet and see the empty space.
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June 13th, 2010 at 12:40 am
groceries that i just couldn’t do without.
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June 30th, 2010 at 7:33 pm
I definatly spend more cash then on credit cards for some reason my cash just seems to be easier to spend and before you know it your wages have gone.
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Having cash on hand can encourage me to spend it especially if I’m in a mall or department store window shopping. Though I use my credit card for grocery shopping, I usually spend more cash than on credit.
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March 22nd, 2011 at 11:45 pm
There are two ways to see this problem. I am among those who tend to spend more when using a credit card, probably because I usually shop with cash. I f I leave home, I know exactly how much cash I got on me and how much I am willing to spend. But when I use a credit card, I buy everything I need and the bill is always about 50% more than I would have expected, but I never give anything up. With cash, I am on a strict budget and it’s physically impossible to overspend.
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I don’t like cash because the paper, in particular, is filthy, and I zero out my CC account every month, so I have free automatic accountancy, and lots of back up if I have to return something, or I contest a charge.
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When you pay in cash, you can “feel” the money leaving you. This is not true with credit cards. Flipping a card up on a counter registers nothing emotionally. If you use plastic instead of cash you will spend 12 percent to 18 percent more. This is money you could have saved.
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