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."
Credit Cards Are Making You Forgetful
The downside of counting money is that it takes time and effort. The upside is that it takes time and effort. That makes it more memorable. Cards make us forget we're dealing with money. They create "an illusion of liquidity," wrote Dilip Soman, a professor at the University of Colorado at Boulder, that makes consumers confuse the ability to spend money and the means to spend money. When paying with plastic, buyers have a tendency to outsource their mindfulness to the card. As a result, they were less likely to remember details about their purchases and more likely to buy additional items.
Credit Cards Are Making You Fat
The "pain" of paying with cash has a hidden benefit. It makes it harder to quickly capitulate to indulgences. Credit card "weaken impulse control," Manoj Thomas, Kalpesh Kaushik Desai, and Satheeshkumar Seenivasan found in a 2011 paper published in the Journal of Consumer Research. "Consequently, consumers are more likely to buy unhealthy food products when they pay by credit card than when they pay in cash." Studying the contents of shopping baskets, the three economists found that shoppers with credit cards bought a larger share of food items they had ranked as unhealthy. In this way, the permissiveness of credit cards weakens consumers' judgment in more subtle ways than total amount spent.