What is your opinion of credit cards?
Answer
Analysis
I've tried writing the first sentence to this analysis a few times but eloquence is abandoning me. Elegant writing will simply not produce what it is that I'm trying to say, so I'll go with the simply statement of:
Credit cards are bad.
Actually... let me rephrase that. If you are a purchaser, they are bad. If you are a retailer, they're great. Why? Because studies have shown time and again that people who use credit cards are willing to spend more for products and services than people who use cash.
For whatever reason (this article proposes a few ideas), people spend more when using credit cards than when not. In fact, people are so programmed into this that even when paying by cash, seeing a sign that says that credit cards are accepted will help increase the spending of the average shopper.
One thing that the article above cites is that those who buy with credit cards will tend to focus on the benefits of the purchase. Those who buy with cash tend to focus on the costs of the purchase. It would seem that when the "burden" of paying for something is greatly reduced, now to the point of tapping the credit card on a reader or pulling up a QR code on a phone app for many purchases, it takes away the thoughts on the cost of the purchase. Purchasing in this manner, focusing on the benefits with little regard to costs, is Impulse Buying, and if it isn't the number one reason why people can't stay on a budget, it has to be in the top three.
Staying on a budget requires something that used to be called "sober consideration" - and maybe it still is. It requires a plan and then, far more importantly, execution of that plan. Credit cards act to circumvent that plan, making it far too easy to buy things and to add on to purchases already being made (ex. what's the cost of another drink when dinner is going to be expensive? What's the cost of buying that appliance insurance plan when the cost of the appliance is going to be so much?)
And so, bottom line - credit cards are an occasional necessity but as an integral part of daily life, credit cards are a financial disaster either waiting to happen (or already happening).
This post is part of a series on budgeting - Budgeting 101
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Questions and comments always welcome!
It's an insidious thing, the way the credit card psychology works. And now with tap features (you simply tap your card on a reader without needing to sign anything), not only will people buy more to make up for small purchases at stores without the tap (say like a grocery store), they'll also be able to buy more small things faster and easier at shops that operate at the "small purchase level" (like coffee shops). It's all designed to get you, the consumer, to consume more - and to do that, retailers don't want you thinking about how much something is.
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