Do We Really Spend More with Credit Cards?

When most people look at credit cards, they see them as just another way to pay for goods and services, like paying with a check, or paying in cash. Some people talk up credit cards because of the rewards programs and the fact that you are using someone else's money for free. Others decry credit cards because so many people mishandle them, and there is always an added risk when one borrows money. Assuming all of those factors are mitigated and it is just another payment method, would a credit card still be the way to go as opposed to paying in cash?

In order to answer that question, we have to look at the behavior of people who use credit cards, versus those who don't. Dunn and Bradstreet did a study which made this comparison, and the results that they found were quite surprising. Statistically they found that on average you will spend 12-18% more when making a purchase with a credit card as opposed to cash. They also discovered that the average McDonalds transaction increased from $4.50 to $7.00. When they looked at vending machines, the average transaction size nearly doubled.

Let's look at the reasoning as to why this might be. One of the reasons could be that credit cards make it much easier to spend money. When you make use of a credit card, all you have to do hand your card to the cashier and sign your name to the receipt. You don't have to worry about if you are spending too much money, and there is no emotional connection that you are letting money leave your possession. When you pay in cash, you have to stop and think about whether or not you will have enough to pay for the rest of your purchases until you go and get more money from the bank. There's an emotional connection between you and your money, and when you let it go, it hurts a bit to do so.