A recent study by MIT Sloan investigated whether credit cards motivate consumers to “step on the gas” when it comes to spending. The researchers used MRI scans to monitor consumers' brain activity during purchases, and they found that it can be compared to the use of addictive drugs, such as cocaine.
We have a look at this research, consider the impact credit cards have on spending, and we find out how you can curb your credit card spend.
Tip: Credit cards aren’t all bad. If you can manage your credit responsibly, check out Mobicred.
What does the research say?
According to Paul Behrmann, CEO of buy-now-pay-later platform Payflex, credit cards create the illusion that you’re not spending your actual money, as opposed to cash, which gets visibly reduced in real time.
“This perception makes us prone to excessive spending. When using credit cards, we’re not consciously aware of the money spent which, in turn, leads to overspending,” says Behrmann.
The MIT study, which was run by MBA students Drazen Prelec and Duncan Simester, established that there is an increased willingness to pay when using a credit card rather than cash.
The study demonstrated that participants with credit cards were willing to pay 100% extra for a purchase – specifically tickets to a professional basketball game – compared to study participants who were paying with cash.
“When you’re buying with a credit card, it’s easy to think of it as not spending ‘real’ money. Ironically, this is in fact true. You are spending borrowed money which is going to incur interest and, worse still, you are incurring debt,” says Behrmann.
READ MORE: Reasons to get your first credit card
How to curb your credit card spend
Behrmann believes that one of the key ways to curb your credit card spend is to become conscious of the fact that you’re paying more than the real value for an item.
He explains that you can drive this fact home by tracking your spending, recording any credit card transactions, and working out the additional interest you will pay on an item.
“Find alternative ways to accommodate your budget which still enables you to buy what you want, without incurring additional interest or fees,” says Behrmann.
If you’re confident in your resolve to purchase, have a look at what Mobicred has to offer.