Yes, Credit Cards Are Making You a Bad Person

Dumber, fatter, poorer.



The cashless society -- a world where physical money is practically obsolete -- has, in just a few years, gone from a utopian dream to something like an inevitability. In Sweden, a national effort is underway to take the country cashless within two decades. Throughout Africa, it's perfectly common for merchants to accept money through mobile phones by having buyers transfer a specific amount of money to a specific number associated with the merchant.

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In the U.S., the road to cashlessness is paved in plastic (glass, too). In the 1970s, fewer than 20 percent of the adult population owned a credit card. Today, between 70 and 80 percent of the adult population does. In some cities, being forced to pay with cash already feels like a precious anachronism ("What do you mean I have to count the money before extending my arm to the register?").

The world of economic research has tried to keep pace with the plastic revolution, producing hundreds of reports on how MasterCard, Visa, and AmEx change our relationship to money and ourselves. The logic of credit is fairly simple. People rarely spend exactly what they earn, exactly when they earn it. With savings, we pass today's earnings to the future. With credit, we pull expected future earnings into today.

The problem is that consumers (and perhaps Americans, in particular) aren't so good at either. We don't save much, and we're awful at projecting future earnings, spending far more than we're able to pay back quickly. Lower-income people, consumers who are worse at math, people who self-report emotional instability, introversion, or materialism, have all been found to get into trouble with credit cards. Here are some more findings from the reams of credit card research -- and few of them are good.

Credit Cards Are Making You Irresponsible
The typical knock on credit cards is that they're too effective at letting us buy stuff. Cash and coins must be considered, handled, counted, organized, re-counted, negotiated into the small space of a palm, and delivered cleanly to a merchant. Each of these verbs represents an inconvenience -- a point of friction. But a card is just a card. Pull, swipe, finished. It's so easy to spend whatever we want.

Too easy, actually. Research has shown that people who own more credit cards spend more over all; more in specific stores; more at restaurants; more on tips at restaurants ... literally, there are hundreds of studies on the effect of credit cards on spending, and the vast majority of them find that, all things equal, we put more on plastic.

In 2001, two business professors from MIT organized an auction for Boston Celtics tickets where one group bid with cash and one group bid with credit. The credit card group offered nearly twice as much for the tickets. "Framing hypothetical purchases as credit card payments may significantly increase likelihood of purchase and willingness to pay," the researchers wrote. They put their cheeky credit card advice right there in the headline: "Always Leave Home Without It." 

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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