Let’s say you’re strolling around the mall and see a pair of sneakers on sale for $40. You’ve been in the market for a new pair for a while and decide to buy them. At the register, the total comes up, and you have to decide: cash or credit?
If you have $50 in your wallet and you buy a $40 pair of shoes using cash, you’re depleting a staggering 80 percent of your cash supply. Shelling out two $20 bills literally feels like you’re removing a lot of stuff from your wallet, right? Meanwhile, if you use a credit card to pay for the shoes, with a quick and easy swipe you’re able to walk out of the store with those shoes and the $50 still in your wallet. Instead of the depleted feeling you get when you hand over cash, you barely notice how much you spent.
Research backs this up. A study led by NYU Stern marketing professor Priya Raghubir set out to determine what effect credit cards have on our spending. And it had some very interesting results: the study suggested that “less transparent payment forms [such as credit cards] tend to be treated like [play] money and are hence more easily spent (or parted with).”
Play money! Can you believe that?
When you have a credit card, it’s important to keep yourself in check. The next time you’re looking at your statement, if you notice a bunch of frivolous, crazy expenditures, maybe it’s a sign that you should be on a cash diet for a while. Remember, a credit card shouldn’t be treated like Monopoly money.
How Credit Card Companies Woo You
To encourage you to keep swiping that card, most credit cards come with a rewards program: airline miles, points for hotels, electronics, cruises. Chances are, your first credit card won’t have a rewards program (or if it does, it will be something minor, like 1 or 2 percent cash back on all your purchases). Rewards programs sound great, but as a young credit card user, they shouldn’t factor into your spending decisions. The goal of a credit card is to be able to show the credit bureaus that you’re responsible with money, not to spend so much that you accumulate rewards points toward a free flight to Barcelona.
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