Somehow, having to part with hard-earned money is almost always painful. You’ve heard people: “That new washer and dryer… Ouch!” “I got my daughter’s tuition payment today, and I almost fainted.” “My car payments are killing me.”
Historically, the pain of paying has been an unavoidable component of the human experience, whether it was trading three clubs for one axe or laying out $100 for a cow. But things got a little more complicated after the credit card was invented in the 1920s. Ostensibly, plastic currency was created to make purchasing more convenient and payments more consolidated. Truthfully, it was more to ease the pain of paying while shopping, so that you could do even more buying before going home with no less cash in your pocket.
(Read up on how to Put Your Budget on Auto Pilot.)
Along those lines, Drazen Prelec argues that credit cards are the great consumer anesthetic. As an associate professor of marketing at the Sloan School of Management at MIT, he studies the psychology of spending and the power of credit. Those studies have led him to become an “always leave home without it” kinda guy. He believes credit cards are insidious in the way that they “disconnect the consumption transaction, which is pleasant, from the payment transaction, which is painful.”
To prove it, Prelec designed a study in which unsuspecting Sloan students could obtain tickets to sold-out Boston Celtics games through a silent auction. Half were told they could only pay with cash, and the other half only with credit.
“On average, we found that the credit card buyers bid more than twice as much as the cash buyers bid,” Prelec said in an MIT Spectrum article. “That’s got to be crazy, right? It suggests that the psychological cost of spending a dollar on a credit card is only fifty cents.”
So how do you keep yourself on track when flashing your plastic? Remain focused on the mathematics of consumption, Scott Rick, assistant professor of marketing at The University of Michigan, tells Credit.com.
“Keep a deliberate mindset and be aware that emotions can lead us in directions that we should avoid,” he says. “There are lots of silly things that stores can do to change our feelings while shopping, but that never changes the purchasing calculus.”