Do not use credit or debit cards to shop

It doesn’t matter whether or not one pays off the card every month. It doesn’t matter that one never carries a balance. Credit cards are dangerous to one’s wealth because one spends more with them. Lots more.

25 fascinating facts about personal debt, by Paul Bannister, bankrate.com.

"People using credit cards in fast food restaurants spend up to 50 percent more than when they pay cash."
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Micropayments Making Their Move, The Green Sheet.

"For many customers, paying with credit or debit is a convenience if they are often short on cash, even change. And customers tend to spend more using plastic, which is good news for merchants and the ISOs/MLSs who sell them bankcard-processing services." ========================

You Better Be Taking Plastic, And Enjoying its Benefits, International Point of Sale.

"Customers using credit cards will spend an average of 30% more than their cash counterparts. The WSJ notes an interesting fact about McDonalds (who recently began rolling out credit card terminals at their registers.) According to the credit card companies, McDonalds found that the average transaction jumped from $4.50 for cash customers to $7 paying with plastic (credit or debit card.)"
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The Psychology of Spending Money, by Deborah Fowles.

"One negative aspect of using credit cards instead of cash is that you don't feel like you're spending real money. The pleasant feelings you experience when you purchase the item are disconnected from the unpleasant or painful feelings of making the payment when you get the credit card statement.

"Studies show that most people are much less likely to buy, or less willing to spend as much, when paying with cash as opposed to credit cards. Try leaving your credit cards at home. Pay with cash, check, or a debit card."
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The Psychology of Spending: the urge to splurge, The Spectrum, MIT.
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How Do Credit Cards Affect Willingness to Pay?

Subjects: Pricing, Price Promotions
Past research has shown that credit cards encourage spending. Credit card users spend more in department stores, restaurant tips are higher when credit cards are used, and credit card users are less able to recall prices paid for purchases. Research has also shown the mere presence of credit card logos and paraphernalia lead to higher levels of willingness to pay. In this study, the authors conduct a series of controlled experiments to uncover the underlying behavioral mechanism that leads to such effects.
In an experimental setting, consumers are presented with the opportunity to purchase either a pair of tickets to a professional basketball game, a pair of tickets to a professional baseball game, or a sports banner for a professional team. Some participants were told that payment had to be made in cash while others were told payment must be with a credit card. Results show dramatically higher levels of willingness to pay for participants who were told they must use a credit card. For the two pairs of sporting event tickets, subjects were willing to pay 113% and 76% more. For the sports banner, credit card buyers were willing to pay 59% more. Further analysis of the results shows that the differences in willingness to pay are not attributable to liquidity constraints. That is, the higher willingness to pay does not result from the unavailability of cash paired with the availability of credit. A more general explanation for higher willingness to pay stems from the way consumers perceive money and prices in noncash situations. Consumers appear to diminish the amount they sacrifice when credit cards are used. Promotion managers should be aware of the ways method of payment can be incorporated into promotion programs.

Always Leave Home Without It: A Further Investigation of the Credit Card Effect on Willingness to Pay
Drazen Prelec and Duncan Simester (M.I.T.)
Marketing Letters, vol. 12, no. 1, 5-12.
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And I think this is the best one yet:


The Value of Money, by Gillian F. Jay, Renna Jiang, & Dilip Soman, Advances in Psychological Research

Exerpt:

"Ask any school-aged child what money is and he will likely tell you that it is what you use to pay a price to acquire a good – in North America, it is dollars. The notion of money is instinctive to modern day people. Adults and school-aged children alike are familiar with what money is and have encountered it in their everyday lives. After all, a dollar is a dollar, is it not? A key assumption that underlies money has remained relatively unchallenged by consumers and economists alike. This assumption is that of format invariance – people’s valuation of money is affected only by the amount that they have. Put simply, a dollar is a dollar and two dollars is twice as much (Parkin and Bade 2003).

"At first, it may seem nonsensical to question an assumption that has not only been widely accepted by a great many economists throughout the ages and around the world, but one whose validity is required by numerous economic theories and models to remain valid themselves. Evidence, however, exists that serves to nullify the assumption of the format invariance of money. More specifically, people’s consumption behavior, which depends on their valuation of money, is influenced by payment mechanism, consumer credit availability, physical form of payment, timing of payment, source of money, and currency in which prices and incomes are expressed.

...

"With the growth in the number of people holding credit cards and using them more frequently for payment, it appears that credit card companies and retailers do believe that people spend more using credit cards than using cash. Additional published research results lend support to the finding that payment format has an effect on people’s valuation of money and further explores the role of credit cards in spending behavior (Feinberg 1986).

"The commonplace status and high visibility of credit cards inspires the research hypothesis that the mere presence of credit cards serves as stimuli for spending behavior. That is, without even using them, they increase consumption expenditures. Research conducted by Feinberg (1986) tested this hypothesis as well as whether the effect was moderated by gender, product types or interactions. In a laboratory experiment, subjects were presented with a book of consumer products and asked to answer two questions about each product – one of which was an evaluation of how much the subject would spend on the product pictured. To administer the credit card stimuli, a replica of a credit card well-known to subjects and a corresponding insignia used on retail doors were present on a corner of the desk that held the book of consumer products. Subjects exposed to the credit card stimuli were willing to spend more than those who were not exposed to the stimuli. Subjects did show a significant main effect for products – they were willing to pay different sums for different products.

...

"This research confirms that the mere presence of credit card stimuli can increase an individual’s willingness to pay and the actual spending magnitude, while reducing the decision time to spend. This research is significant as it implies that spending magnitude is increased not only when credit cards are used as payment, but also when the logo of credit cards is present without using a credit card as payment.

...

"Consider payment by cash as the benchmark transaction. In paying by cash, the payment is very salient in both physical form (i.e., it is easy to see that money is being spent) and in amount (i.e., since cash has to be counted and surrendered, the amount is memorable). In moving from cash to check payments, the salience of the physical form weakens somewhat, but the amount is reinforced (since it has to be written in words and numerals). With credit cards, the salience of both the physical form and the amount is weaker (i.e., cards do not have the physical properties of cash, and the degree of price reinforcement is limited). With electronic and mobile payments (such as the Hong Kong examples discussed earlier), the salience is even lower."


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