I’m sure that you’ve heard the statistics before… People who use credit cards spend more than those who use cash. The argument is that cash helps you to see and feel the money leaving your pocket, and thus it helps you reign in your spending.
While this makes perfect sense on the surface, where are the data to actually back this up? Debt reduction guru Dave Ramsey claims that people spend 12-18% more with credit cards than with cash, but doesn’t provide any data to back it up. There is also an oft-cited study by Dun & Bradstreet that makes similar claims, though I haven’t been able to locate it. The trouble here is that people citing this study variably claim a 10%, 15%, 12-18%, or even 64% (!!!) difference.
So what’s the truth?
I honestly have no idea. I’ve looked fairly extensively, and I still haven’t been able to find data to back up the various claims. That being said, my personal experience runs counter to the prevailing wisdom that credit cards = higher spending. Sure, if I was out and about without credit cards and didn’t have any cash in my pocket, I wouldn’t be able to spend anything.
But when I do have cash, I tend to be pretty free and easy with it. And if I wasn’t carrying credit cards, I’d be all the more likely to have cash in my pocket. Moreover, with the advent of debit cards, many consumers still don’t get that feeling of cash leaving their hands even if they avoid credit cards.