Do You Love Your Credit Card? 

Many studies have been done on credit cards in the past and how they affect our buying patterns. In fact all the way back to 1986 a US study was done by Richard Feinberg. He tested the same restaurant for a 48-hour period. In 24 hours he told consumers they were not allowed to use their credit card as they walked in. The following day, he did the opposite, and made sure every customer knew they could use their credit cards. In the 24-hour period where the credit cards could be used, the orders where bigger and the tips that were left were larger. People seemed to care less about the final bill when they knew they could just hand over a credit card at the end of the meal.

In 2001 a study by Duncan Simester approached random people and offered them sold-out tickets to a real basketball game. The tickets were very desirable. One group was not allowed to pay for the tickets via credit card, only cash. The other group of people got the chance to pay with credit cards. Would you believe the credit card group offered twice the average price for the tickets, as the people who could only pay with cash?

A 1999 study by The Soman Company found strong evidence that credit card users are more likely to underestimate or forget the amount spent on recent purchases, thus leading to a higher weekly spend on average than people who used cold hard cash.

Let's pretend you believed these studies. While the 2001 basketball tickets study suggested people are likely to pay 100% more for items, let's be a little bit more conservative and say you will pay only 5% more for things on each purchase. Just imagine you spend only 5% more on your weekly grocery shopping than you would have had you been using cash. A new study in Australia suggests that the average Australian household spends $290 a week at the supermarket. However let's add 5% to this total because you are using a credit card. Again because it's a subconscious thing, you might just add a few impulse items you were not intending to buy. You might buy a higher priced branded product than your normal generic product. Plus you might be less inclined to just compare prices as much as someone using cash. All of a sudden you are spending above the average Australian family at $304.50. Sure, this is only $14.50 extra a week, however it's $754 extra a year. Plus let's throw in a $100 credit card annual fee. Now this amount is $854.

This does not include the possible extra money you spend on anything else right throughout the year as you will probably be reaching for your wallet or purse on average three to four times a day. Each time, you must ask yourself: "Am I spending more in this situation, instead of just using cold hard cash?" You might say "no" but all the studies suggest you are doing it without even realising it!

These studies all concluded that the problem was a disconnect with people because using a credit card allowed them to pay back purchases at a future date. Or as one study called it: "we can worry about that tomorrow" syndrome. However when paying with real money they were having to juggle their budget around and make allowances for the purchase then and there. This means they were thinking of the consequences right away for their money situation. At this point a lot of people came to the conclusion they cannot afford the item or they need to find it cheaper.

So if you do agree with my extra 5% supermarket scenario, there is no way you are getting this amount back on the so-called loyalty points. Not to mention the points really do not add up to very much in the way of rewards. Switch to cash or a debit card. Your home budget will thank you for it.