Pain of paying
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The credit card bills have been pouring in from holiday spending and the total amount due is shocking.
Sound familiar?
Two college professors who studied consumer spending habits found proof that people tend to spend more when they pay with plastic and less when they use cash.
The reason: People feel the effect of paying with cash immediately, a term the researchers called the pain of paying. With credit cards, the statement doesn’t arrive until the end of the month.
The results were published by the American Psychological Association this fall. “When you don’t see the money actually rolling out, then you spend a little more,” said Joydeep Srivastava, professor at the Robert H. Smith School of Business at the University of Maryland, College Park.
The study was titled “Monopoly Money: The Effect on Payment Coupling and Form on Spending Behavior.”
Srivastava and Priya Raghubir of the Stern School of Business at New York University studied the behavior of research participants in four different scenarios.
In the first part of the study, the participants ordered meals from two restaurant menus.
In the first scenario, the menu contained a credit card logo. In the second scenario, cash was the only form of payment accepted, Srivastava said.
People spent more when they could put the tab on their credit card, he said. So, he and his colleague decided to study whether the credit card effect could be minimized.
What they found was when people took the time to itemize what they planned to buy and calculate the approximate cost, they spent less, Srivastava said.
In the first scenario, the participants were asked to estimate how much they would spend on Thanksgiving dinner for six people.
In the second scenario, the research participants were asked to itemize the expenses, estimate the cost per item and then give an overall total.
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