How using credit or cash effects what you buy
Payment Methods and Product Perceptions
courtesy of FiveCentNickel.com
Understanding Discretionary Spending
10 Reasons to Use a Cash-Only Spending Plan
The Emotions Behind Buying Stuff
I recently ran across an interesting article in the Journal of Consumer Research. In it, the researchers looked at the effect of your payment methods (credit card vs. cash) on how you evaluate a product (benefits vs. costs).
The authors argue that the so-called credit card premium (using a credit card) increases the average consumer's propensity to spend and is due in part to the effect that using credit has on your perception/evaluation of products.
They found, for example, that study participants "primed" with a credit card (i.e., given word puzzles that involved terms related to credit cards) were less able to recall details related to product costs than those that were primed with cash. And yet, the credit card priming had no effect on the ability to recall product benefits.
Likewise, individuals primed with a credit card tended to identify more words related to the benefits of a product as opposed to costs when they did a computerized word recognition study. Those primed with cash did the opposite.
In a third study, individuals primed with credit cards were found to respond more quickly to benefits than to costs when given a product description and asked to press one button if they heard a benefit and another button if they heard a cost. Cash-primed individuals were the opposite.
And finally… They found that consumers will preferentially select a product with superior benefits when primed with credit concepts, but a product that is superior cost-wise when primed with cash concepts.
In other words, it seems that dealing with cash (or at least cash concepts) makes you more price sensitive, whereas dealing with credit (or at least credit concepts) make you more sensitive to perceived quality.
Would you like to
pay off your credit cards
in less time
for less money?
In terms of big picture implications, they argued that:
Marketers, by constantly reinforcing the salience of credit-related concepts, may be affecting not just the amount of money consumers are willing to spend but also the nature of the goods and services that find their way into consumers' market baskets.
Paying with credit cards may increase the likelihood of indulgent choices that are less healthy compared to cash. This effect is likely to be magnified by the rapid movement away from cash to credit/debit card purchasing.
Food for thought…
Take the Next Step:
- Get an understanding of the emotions of your purchases when using a credit card and it might help curb your spending.
- Discover more savvy tools to control spending by visiting the Dollar Stretcher Library.
- Stop struggling financially. Take these steps to get out of debt and begin the journey to financial freedom!
- Get control of your financial life. Subscribe to Financial Independence, a free daily email that provides you with the tools to help you gain that control and achieve financial independence. Subscribers get a copy of Are You Heading for Debt Trouble? A Simple Checklist for FREE!
Share your thoughts about this article with the editor.
I often wonder if I should be seeking professional help to get my debt under control! Tell us: Yes, I'd like to find out if I am a good candidate for credit counseling or No, I don't think I need couseling but I would like to find out how I can pay off my credit cards more quickly.
More Debt Tips & Tools
- 6 smart strategies for paying off your credit cards
- 5 great second jobs to bring in extra cash
- Pay down debt now or save: Here's how to choose
- Can I get a debt consolidation loan with bad credit?
- Ways to keep your spending from controlling you
- Surviving financially as a single mom
- Creative grocery budget stretching
- This week's Readers' Tips
- Reduce your debt step by step
- Am I a good candidate for credit counseling?
- Do I have a debt problem?
- Compare personal loan rates
- Get free answers to financial questions
- Get free answers to legal questions
- Calculate the real cost of your debt
- Debt pay-down calculator
- Calculate the true cost of paying just the minimum