I'd like to know if there is any reliable research on the subject.
Intuitively, this must be true, no? Is it? First, is it even possible to discover the correlation, if one exists? Dave Ramsey is a proponent of "Proven study that shows you will spend 10% more on a credit card than with cash." Of course, he suggests that the study came from an otherwise reliable source, Dun & Bradstreet. A fellow blogger at Get Rich Slowly researched and found -
Nobody I know has been able to track down this mythical Dun and
Bradstreet study. Even Dun and Bradstreet themselves have been unable
to locate it. GRS reader Nicole (with the assistance of her trusty
librarian Wendi) contacted the company and received this response:
“After doing some research with D&B, it turns out that someone made up
the statement, and also made up the part where D&B actually said
In other words, the most cited study is a Myth.
In fact, there are studies which do conclude that card users spend more. I think that any study (on anything, not just this topic. Cigarette companies buy studies to show they don't cause cancer, Big Oil pays to disprove global warming, etc.) needs to be viewed with a critical eye. The studies I've seen nearly all contain one of 2 major flaws -
- Behaviors are contrived. Specifically, the studies don't observe real life, they take a snapshot of behaviors of people choosing between a gift card and cash for a food purchase. Such studies don't hold up well to extrapolation to a full family grown up budget.
- Study itself is flawed. It's important to understand how statistics work, and what makes for a valid observation. Some time ago, a study came out linking coffee drinking to cancer. I immediately told my wife the study was a joke (as in 'flawed' not an attempt at humor). When the study was debunked some time later, the false correlation was revealed. Coffee drinkers have a higher propensity to smoke than non-drinkers. The coffee --> cancer was a false correlation. Or rather correlation without causation. The paper vs plastic studies that otherwise would be valid fail to separate the obvious 2 groups among card users. Those who pay in full vs those who carry a balance. Say only 1/3 pay in full, and have no impact from spending. 2/3 use card, carrying balance, but actually spend 15% more. The summary line is still "card users spend 10% more."
My own observation - when I reviewed our budget over the course of a year, some of the largest charges include -
- Insurance Home, Car, Life
- Medical costs
- Dance classes (my daughter's career choice, a hefty annual expense)
- Gas (2 cars, 3 drivers)
I list the above, as these are items whose cost is pretty well fixed. We are not in the habit of "going for a drive," gas is bought when we need it. All other items I consider fixed, in that the real choice is to pay with the card or check, unlike the items some claim can be inflated. These add to about 80% of the annual card use. I don't see it possible for card use to impact these items, and therefore the "10% more" warning is overreaching.
To conclude, I'll concede that even the pay-in-full group might not adhere to the food budget, and grab the $5 brownie near the checkout, or over tip on a restaurant meal. But those situations are not sufficient to assume that a responsible card user comes out behind over the year for having done so.
A selection of the Studies I am referencing -