Research Delves into Spenders' Minds

By Karp, Gregory | Tribune-Review/Pittsburgh Tribune-Review, December 25, 2011 | Go to article overview

Research Delves into Spenders' Minds


Karp, Gregory, Tribune-Review/Pittsburgh Tribune-Review


You know what they say about beauty and the beholder? It apparently lies in the eye of the cardholder too.

That's according to new academic research that shows consumers who pay with a credit card focus on the benefits of a purchase, while those who pay with cash concentrate on its cost.

A take-away for consumers is that using credit cards can be dangerous to your wealth for more subtle reasons than paying finance charges on balances. It can affect not only how much you spend, but what you buy.

The new research comes from Promothesh Chatterjee and Randall Rose in a study, "Do Payment Mechanisms Change the Way Consumers Perceive Products?" to be published in an upcoming issue of the Journal of Consumer Research.

When it comes to credit cards, it's well established in the field of behavioral economics that people who use plastic are unconsciously willing to spend more than those who pay with cash, a phenomenon known as the "credit card premium." That's because there's an emotional pain associated with handing over hard currency that curbs spending, as opposed to mindless purchasing when forking over plastic.

It provides a lesson for even financially prudent people -- just because you pay off your card balances every month to avoid finance charges doesn't mean credit cards aren't harming you. You might be overspending, simply because of the payment method you choose.

The new study adds to that research, suggesting another reason why people spend more with credit cards. It found that the intention to pay with either cash or credit can determine whether a consumer concentrates on a product's benefits or its cost -- to the point they might choose different products when they know they will be paying with credit.

"When (consumers are) exposed to new products and thinking about paying with credit, they tend to focus on the good things about the product -- the aesthetics of it, the features that are better than other products they're considering, the sexiness and luxury of it," Rose said in an interview. "That's as opposed to details related to cost, like the price, shipping cost, warranty cost, installation cost and effort."

In an experiment, consumers primed by researchers to think about credit cards had trouble recalling facts about a digital camera's cost. In another, those who were thinking about credit were able to correctly identify more words related to the benefits of a laptop computer but fewer about its cost. The opposite was true for those primed to think about paying cash.

The authors note that this might happen because consumers from an early age are exposed to credit card advertising, which links use of credit cards with highly desirable products and lifestyles, as well as immediate gratification.

So what's the advice for consumers? Some financial gurus advise paying cash for most things, although that's becoming more unusual today, especially among young people who shop online. A compromise could be debit cards, which likely have a more moderate effect on overspending. Using a debit card involves handing over a piece of plastic, but there's a mindfulness because you have to think about your bank account balance. …

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