Shopping Discussion

Food for Thought for all those shopping with a Credit and/or Debit Cards

  • Last Updated:
  • May 23rd, 2017 3:47 pm
[OP]
Jr. Member
Apr 30, 2017
125 posts
29 upvotes

Food for Thought for all those shopping with a Credit and/or Debit Cards

https://www.nerdwallet.com/blog/credit- ... pend-more/

"It turns out that multiple behavioral economics studies back up these assertions. One of the most often cited studies is one conducted by Dun & Bradstreet, where the company found that people spend 12-18% more when using credit cards instead of cash. McDonald’s reports its average ticket is $7 when people use credit cards versus $4.50 for cash"


https://www.nytimes.com/2016/03/27/your ... .html?_r=0

"Credit Cards Encourage Extra Spending as the Cash Habit Fades Away"


https://www.nytimes.com/2014/10/11/your ... nding.html

"One of the most well-known studies, published in 2001 and titled “Always Leave Home Without It,” showed that in certain contexts, people were willing to pay up to twice as much for the same item when paying with a credit card instead of cash. This is known as the “credit card premium.” "


Behavior with debit cards is identical to CC. I also read that even though it is too new to have studies/data on it, Apple Pay seems to be leading to the same behavior as CC/DC.

But the point I wanted to draw attention to is that I see a huge preoccupation with rewards/cash back and it is easy to lose sight of the fact that any overspending negates all benefits. What's the point of getting 2% back if using a CC/DC/Apple Pay makes you, on average, spend 10% more???

Of course, this doesn't apply to you ;)

P.S. For the record, I have three CC, but I also use cash.
18 replies
Member
Sep 4, 2014
390 posts
100 upvotes
Toronto, ON
Meh dont really think much about my rewards when I shop. I use my CC for all purchases indiscriminately from if I would use cash I believe. If I am going to buy something I don't believe that I over spend because of the CC premium factor.

I believe Amazon prime and RFD are a much bigger threat to my wallet lol.
Deal Addict
Nov 22, 2015
1618 posts
756 upvotes
Maybe this only applies to people who are used to using cash on a regular basis?

I've never used cash in my life.... Obviously that's an exaggeration, but I mean I've never carried cash as my primary method of payment.. parents started me with a debit card at a young age and a credit card by age 15 (supplementary card). Got my own visa when I turned 18.

In fact, I find that it's the opposite. I'm very concious of how I spend on my credit cards. I track my spending via Mint and review statements meticulously. However when I have cash, I feel like it's not real money and tend to blow it all fast, and on stupid stuff. I could spend an afternoon in a mall and buy nothing on CC... Or blow $300 in cash in no time at all. In particular, USD feels like Monopoly money to me, and I'm inclined to gamble it away or spend it on food.
Deal Fanatic
User avatar
Mar 6, 2003
9869 posts
1228 upvotes
Ottawa
I never use cash. Can't stand the change and handling bills any more. If the retailer charges me the same, might as well get rewards for it

If I had to use cash, yes I would probably spend less, because it's just more work to withdraw cash and the number of bills in my wallet is finite so there's a mental incentive not to spend as much.

In the end, I'm not going to change my habits and start using cash. Most of the stuff I need to buy I would buy regardless of cash or credit, I view the rewards as a bonus and it doesn't affect my thinking of whether I should buy it
Deal Fanatic
Aug 14, 2007
7782 posts
494 upvotes
Toronto
warpdrive wrote:
May 17th, 2017 9:14 am
I never use cash. Can't stand the change and handling bills any more. If the retailer charges me the same, might as well get rewards for it

If I had to use cash, yes I would probably spend less, because it's just more work to withdraw cash and the number of bills in my wallet is finite so there's a mental incentive not to spend as much.

In the end, I'm not going to change my habits and start using cash. Most of the stuff I need to buy I would buy regardless of cash or credit, I view the rewards as a bonus and it doesn't affect my thinking of whether I should buy it
I've been tempted to purchase products in the past due to having credit cards and saying "I'll pay for it when I get paid". Now that my cost of living has gone up substantially, I actually spend money on things I don't need much less than before.
Jr. Member
Feb 7, 2017
191 posts
107 upvotes
I was raised on a Cash Only Mentality (My Parents were born prior to the Great Depression, and also lived thru WWII Rationing). Their motto was "If you don't have the cash for it... Then don't buy it". They got CCs in the 1960s, but used them entirely for convenience, and to create a solid gold Credit History. They paid them off fully each month (well before the due date... Lol probably the day the bill came in the mail).

So I grew up with this as a model, and have adhered to the basic tenants of it ever since... But I still took on CCs and Debt as have most of my generation. Remember my Dad had a total meltdown when we bought our first house and took out a mortgage. I had to explain to him that times had changed, not only economically but how things were done. Whereas he bought / built his house on a pay as you go basis, this could not be as easily done in the 1980s... Building Codes no longer alllow folks to move into a half finished (no kitchen, barely any plumbing house) like he / we did when younger.

Personally, as much as I admire what he has done in life, and being able to build up wealth over time... I like the fact that I moved into a finished house and paid off my mortgage over time. Sure it meant being more careful / wise in our other monthly spending, so as not to be tempted go into debt.

That is how I used credit. Buy what I need or want as long as I can pay it off monthly. Don't go into debt. Don't buy more in a month than there is money for. Plan my expenses... Be it the day-to-day stuff or larger less frequent purchases (save up if need be... Vacations, Cars, etc). Shop around, find deals, and pay it off immediately / ASAP.

I also use credit to my advantage... Looking for no interest car payments, no fee CCs and ones with Rewards.

I see all that as perks in addition to building my credit.

So nah, I don't spend more because it is going on plastic... To me plastic is just MY CASH that is extremely convenient... Lol, remembering back what it was like back in Uni when I did not have a CC (Students NEVER had credit back then) and Debit & ATMs did not exist... And Banks (all banks even if you went to just a different branch) did not to "share info", cash cheques for yourself, or transfer funds. Standing in line at "my branch" every payday, and figuring out how much you needed for the weekend / week in your pocket sucked. Much prefer the fact that I can now use plastic and balance / keep track of my spending online at my leisure.

How far we've come since the 70s & 80s. So I really appreciate plastic & automation.

And the Rewards ? Ya they are a true added BONUS when you manage your cards. Always surprised at the end of the month / year with how much we've essentially gotten for FREE by doing what we would have done anyways.
Deal Guru
Dec 4, 2010
14177 posts
988 upvotes
Guess I'm lucky. I'm frugal which ever method of payment I use. I look at things I want then I look at price. Will always try to find some cheaper alternative.
Deal Fanatic
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Mar 6, 2003
9869 posts
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Ottawa
Supercooled wrote:
May 18th, 2017 1:18 am
Guess I'm lucky. I'm frugal which ever method of payment I use. I look at things I want then I look at price. Will always try to find some cheaper alternative.
I would say I always look at the value I'm getting. I want to find the best possible deal and price, but also I might choose to spend more to get better quality so I'm not always wasting time and energy replacing inferior goods. I might go to the dollar store to pick up cheap paper pads, but I might spend more to get German Made screwdrivers that will last me forever and not split apart the first few uses.
Jr. Member
Feb 7, 2017
191 posts
107 upvotes
warpdrive wrote:
May 18th, 2017 7:45 am
I would say I always look at the value I'm getting. I want to find the best possible deal and price, but also I might choose to spend more to get better quality so I'm not always wasting time and energy replacing inferior goods. I might go to the dollar store to pick up cheap paper pads, but I might spend more to get German Made screwdrivers that will last me forever and not split apart the first few uses.
To me this is the best of both worlds. The definition of being thrifty / thoughtful with ones spending (vs frugal / cheap). With this model one is being a Smart Shopper / Wise Consumer
[OP]
Jr. Member
Apr 30, 2017
125 posts
29 upvotes
The fact that banks can charge 10% to 30% interest on CC balance speaks for itself...
Deal Addict
Jul 30, 2001
2193 posts
467 upvotes
GTA
Did this study account for the difference in demographics for those who strictly use cash vs. those who exclusively use credit cards?
[OP]
Jr. Member
Apr 30, 2017
125 posts
29 upvotes
N8Magic wrote:
May 19th, 2017 10:15 am
Did this study account for the difference in demographics for those who strictly use cash vs. those who exclusively use credit cards?
You can do your own research, but here is a sample of what I found.

"There is also a lot of evidence that consumers spend more money when paying with credit cards than when they are spending cash. For example, Drazen Prelec and Duncan Simester reported studies on this topic in a 2001 issue of Marketing Letters. In one study, they told that randomly selected participants in the study would be offered the opportunity to purchase tickets to an actual professional basketball game that had just sold out. These tickets were highly desirable. Participants were told either that they would have to pay in cash or that they would have to pay by credit card. They were asked how much they would be willing to pay for these tickets. Those who were told they would have to pay by credit card were willing to pay over twice as much on average as those who were told that they would have to pay by cash."

"Richard Feinberg explored the link between credit cards and spending in a 1986 article in the Journal of Consumer Research. He varied whether people could see credit card logos while they were making purchases or leaving restaurant tips. People left higher tips and indicated that they would be willing to spend more for products when they could see a credit card logo at the time than if they could not."


"In addition, people may pay less attention to prices when they are paying by credit card than when they are paying by cash. For example, the article by Prelec and Simester cites an unpublished study by Dilip Soman suggesting that people are less likely to remember the amount they spent on a purchase when they pay with a credit card than when they pay with cash."


You can read more below;

"Always Leave Home Without It: A Further Investigation of the Credit-Card Effect on Willingness to Pay" http://web.mit.edu/simester/Public/Pape ... vehome.pdf

2016 Credit Card Debt Study: Trends & Insights: https://wallethub.com/edu/credit-card-debt-study/24400/

"As quoted by Dave Ramsey, “debt is the most aggressively marketed product on the planet”. This statement is 100% accurate, and I know this to be true, because credit card companies have convinced very smart people that they can get something for nothing. There are tons of you out there that are very savvy, intelligent consumers and you are grinning every time you get $3 cash back on a $100 purchase that you won’t pay interest on. But, could that $100 purchase have been $80 if you had brought cash? Now you’ve spent $20 more in order to receive $3 cash back."


http://www.moneycrashers.com/you-spend- ... edit-card/
Deal Addict
Apr 9, 2010
2284 posts
506 upvotes
Montreal
In my case it's the opposite. I tend to spend cash ASAP because I don't want to have many bills in my wallet and I see it as available funds to blow on whatever I want.

That's why I keep 90% of my funds in my bank account. Also, when I use my credit card I can easily keep track of my spending online.

Oh and 1.5% cashback on everything I buy sure doesn't hurt :) (I never spend more thinking about cashback though.)
[OP]
Jr. Member
Apr 30, 2017
125 posts
29 upvotes
kenze wrote:
May 19th, 2017 3:21 pm
In my case it's the opposite. I tend to spend cash ASAP because I don't want to have many bills in my wallet and I see it as available funds to blow on whatever I want.

That's why I keep 90% of my funds in my bank account. Also, when I use my credit card I can easily keep track of my spending online.
Hope your bank is something like Alterna Bank where they currently pay 1.9%.
Member
Sep 8, 2006
241 posts
51 upvotes
Edmonton
My spending habits do not change whether I have to pay with cash or credit. I prefer to use credit because I earn rewards and I don't end up with coins.

Credit cards allow people to purchase things with credit if they don't have the cash but if you always pay off your credit card, you earn interest on the cash when it sits in your bank account prior to statement due date.
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