Credit Cards or Cash?

The use of credit cards in America today has become as common as sliced bread. However, working in the area of financial management I see it as a large contributor to indebtedness and eventual bankruptcy.

Social scientists have found that consumers have been conditioned by the sight of credit card logos to want to spend more. Cash is real. It’s a tangible thing, a piece of paper with value attached to it. When you spend it, you have less of it in your wallet. You see this and process it. On the other end of the spectrum, we have credit cards.

Psychologically, it seems like it would be easier for someone to purchase more because a card, while tangible, does not represent actual money. It’s just a piece of plastic, and a shopper does not see the result of their expenditure for almost a month. In the field of behavioral economics it’s been established that people who use plastic are unconsciously willing to spend more than those who pay with cash, a phenomenon known as the “credit card premium.”

Sometimes it’s easier to spend money when you don’t see it leave your bank account. When you have a wallet full of cash, on the other hand, you watch it disappear as you make purchases. A study of credit card use by a major fast food restaurant found that people spent 47 percent more when using credit instead of cash.

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