PerkStreet Financial

While credit cards aren’t always the evil piece of plastic the media would have you believe, they have a sneaky way of increasing our spending, even when we think we are using them responsibly (e.g. paying our balance off in full each month). Research by Dunn & Bradstreet and several others shows that you will spend 12-18% more when using a credit card. Why? I won’t cite all the reasons that have been uncovered, but I found several of these intriguing and impactful in my own life. This is the first in a series of posts on how our brains can trick us into bad behaviors.

Trap 1

Ever wonder why it seems expensive to spend $20 on a CD, but $20 to go out for dinner seems cheap? Here’s a short version of a great article (read the full article here: http://www.spring.org.uk/2008/04/avoid-relativity-trap-how-thinking.php ): it’s difficult for us to compare values of unrelated items and as a result we think about the expense of an item relative to similar items, rather than on global level. For example, when I bought my TV, I compared the cost relative to other TVs instead of thinking about where else would I spend this money. Had I used my debit card, I would have noticed that I was about to use half the money in my checking account and asked myself: “how do I want to spend this money” instead of “which TV is the better deal.” If I had asked myself this question, I would have a much smaller TV on my wall.

My father has a less scientific saying when my mom comes home with an item she purchased on sale: “think how much you would have saved if you didn’t buy anything at all.”

To be continued…

No related posts.