Credit Cards as Lifestyle Facilitators

Time to Cut Up Those Debit Cards? Effect of Payment Mode on Willingness to Spend

Financial industry data indicate that consumers increasingly prefer debit cards over credit cards, especially as a means of enforcing financial self-discipline. Given prior research suggesting that credit cards act as spending facilitating stimuli, this move toward reduced credit card use would appear to be in the right direction. Ironically, however, the same logos that were implicated in facilitating spending with credit cards are the logos that appear on debit cards. In what should serve as an eye-opener to consumers, it is found that exposure to debit card logos does result in an increased willingness to spend, similar to credit cards.

Credit Cards as Spending Facilitating Stimuli: A Conditioning Interpretation

Abstract. Four experiments and one study were conducted to test the hypothesis that stimuli associated with spending can elicit spending responses. In all

Leave Home without it? The Effects of Credit Card Debt and Available Credit on Spending

This research examines how credit card debt affects consumer spending. In five experimental and field studies, the authors demonstrate that outstanding credit card debt increases spending for consumers with high self-control. They also show that this effect can be eliminated by increasing the available credit on the credit card. Thus, when the available credit is low, consumers with greater self-control increase spending, but when the available credit is high, they reduce spending. The results extend the literature on goal violation and self-control and offer insights into consumer decision making and consumption patterns under conditions of debt.

Differences in Consumer Purchase Behavior by Credit Card Payment System

Abstract. A conceptualization of the relationships between alternative payment systems and various environmental and behavioral variables, which may serve

Purchase Justifiability Drives Payment Choice: Consumers Pay with Card to Remember and Cash to Forget

AbstractAlthough consumers often have multiple payment methods at their fingertips, such as cash and credit/debit cards, prior research is silent on how consumers choose between them. We home in on a key element of purchase—purchase justifiability—that affects how consumers choose to pay. Analysis of 118,042 real-world purchases and six experiments reveals that when consumers are motivated to forget (vs. remember) a purchase because they see it as difficult (vs. easy) to justify, they have an increased preference to pay with cash (vs. card) because cards create a “paper/electronic trail” that aids memory retrieval. These payment preferences are strongest among consumers most likely to recall/track their card spending, and manifest only when card expenses are trackable. We reconcile our results with the classic effect of payment method on pain of paying and discuss implications for merchants and for financial institutions designing payment methods of the future.

Do Payment Mechanisms Change the Way Consumers Perceive Products?

Abstract. Do payment mechanisms change the way consumers perceive products? We argue that consumers for whom credit cards (cash) have been primed focus mor

FinTech Adoption Across Generations: Financial Fitness in the Information Age

This paper analyzes how better access to financial information via new technology changes use of consumer credit and affects financial fitness. We exploit the introduction of a smartphone application for personal financial management as a source of exogenous variation. FinTech adoption reduces financial fee payments and penalties, but differs cross-sectionally in the population. After adopting the new technology, Millennials and members of Generation X incur fewer financial fees and penalties, whereas Baby Boomers do not benefit from the technological advance. Millennials and Gen Xers save fees by using their credit cards rather than overdrafts to manage short-term liabilities. Moreover, Millennials shift some of their spending to discretionary entertainment, whereas members of Generation X remain more austere. Finally, while men tend to adopt new technology and access information at a higher rate, the economic impact of access is larger for women.

Rewards and Misperceived Spending: Experimental Evidence from Credit Cards

Using proprietary data, a survey, and an experiment with a major bank in China, this paper studies how credit card rewards affect perceived and actual consumer

Payment Rewards and Credit Card Debt: Experimental Evidence

We report on a controlled laboratory experiment in which participants make consumption, saving, and credit card repayment decisions when credit card purchases e

The Impact of Credit Cards on Spending: A Field Experiment

In a field experiment, we measure the impact of payment with credit card as compared with cash on insurance company employees' spending on lunch in a cafeteria.

The Credit Card Debt Puzzle: The Role of Preferences, Credit Access Risk, and Financial Literacy

Abstract. We use the 1979 National Longitudinal Survey of Youth to revisit what is termed the credit card debt puzzle: why consumers simultaneously co-hold high-interest credit card debt and low-interest assets that could be used to pay down this debt. Relative to individuals with no credit card debt but positive liquid assets, borrower-savers have very different perceptions of future credit access risk and use credit cards for precautionary motives. Moreover, changing perceptions about credit access risk are essential for predicting transitions among the two groups. Preferences and the composition of financial portfolios also play a role in these transitions.

Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior? Evidence from Credit Card Data

Abstract. This paper utilizes a unique data set of credit card accounts to analyze how people respond to credit supply. Increases in credit limits generate

Managing Mental Accounts: Payment Cards and Consumption Expenditures

Does mental accounting matter for total consumption expenditures? We exploit a unique setting in which individuals exogenously received a new credit card, without requesting one. Using random variation in the time of receipt we show that individuals temporarily increase total consumption expenditure by making purchases with the new card without reducing spending on the others. We do not observe a corresponding increase in indebtedness. Total consumption expenditure rises even for the least liquidity-constrained individuals. The evidence is consistent with consumers treating methods of payment as nonfungible budget categories, as suggested by models of mental accounting and narrow bracketing.

When Motivation is against Debtors' Best Interest: The Illusion of Goal Progress in Credit Card Debt Repayment

The authors explore the illusion of goal progress by consumers who own multiple credit cards and pay off their debt balances to facilitate the achievement of their subgoal rather than the superordinate goal of being debt-free. The first experiment shows that debtors use their savings toward the credit card debt they can pay off entirely or substantially, even if it is associated with the smallest balance and the lowest annual percentage rate rather than toward the debt with the highest annual percentage rate. The second experiment reveals that when the income available to pay down the debt is in the form of effortless money (i.e., windfall or reward money) as opposed to hard-earned savings, the tendency to allocate money toward the smallest credit card debt is exacerbated. However, people tend to pay their debt more rationally when the number of debt accounts increases. Finally, the third experiment shows that credit card debt repayment decisions depend on the nature of the debt (hedonic vs. utilitarian) and the timing of consumption benefits (past vs. future). The article concludes with a discussion of managerial and public policy implications.

A Mega-Replication of the Effect of Cash Versus Card Payment on Pain of Paying: Magnitude, Behavioral Outcomes, and Moderators

Abstract We revisit the widely accepted finding that paying with cash is more painful than paying with card by conducting the first systematic mega-replication (including 13 large-scale preregistered replications; a total of 32,371 participants, 65 products, and 57 price points ranging from $1.09 to $400). The aggregate evidence reveals four insights: (1) leveraging a broad set of established paradigms, we replicate the finding that paying with cash is more psychologically painful than paying with card, even among today’s consumers who own multiple cards, digital wallets, and virtual currencies; (2) comparing two outcome variables—amount spent and willingness-to-pay (WTP), we find a more reliable and larger overall direct effect of payment method on amount spent than on WTP; (3) these direct effects of payment method on outcome variables are mediated by pain of paying; (4) the mode-of-payment effect on pain of paying (and thereby on outcome variables) is moderated by individual differences, particularly the relative frequency of using cash versus card. We outline actionable guidance and future directions for researchers and practitioners interested in examining mode-of-payment effects, and discuss the value of and suitable approaches for future theory-driven large-scale replications.

Household Need for Liquidity and the Credit Card Debt Puzzle

Abstract. In the 2001 U.S. Survey of Consumer Finances, 27% of households report simultaneously revolving significant credit card debt and holding sizeable