Do people tend to spend less when using cash than credit cards?
"I found the study ""The irrationality of payment behaviour"" accidentally while searching on the term ""DNB Study"" instead of ""D&B Study"".  This study, which, when I followed the link, went to the web site dnb.nl (Dutch National Bank), instead of dnb.com (Dun & Bradstreet).  It mentions all the salient points that I hear Dave Ramsey and others mention when they talk about studies on this subject of credit vs cash.  Also, it cross references to many other studies by various researchers, banks, and universities.  Is this the ""missing mythical DNB study?""  I'll let you decide.  Relevant ""coincidental"" points from the study: To be fair and complete, I should mention that clearly the relevant parts of this DNB study are talking about discretionary spending.  Auto-paying your mortgage with a card is clearly not going to cost you more (unless you somehow forget to pay off the card or some other silliness)." "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   that.” 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 - My own observation - when I reviewed our budget over the course of a year, some of the largest charges include - 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 -" Psychology Today had an interesting article from July 11, 2016, in which they go through the psychological aspects of using cash vs. a credit card. This article cites a 2008 paper in the Journal of Experimental Psychology: Applied that found: “the more transparent the payment outflow, the greater the aversion to spending or higher the ‘pain of paying’ …leading to less transparent payment modes such as credit cards and gift cards (vs. cash) being more easily spent or treated as play or ‘monopoly money.’” The article cites a number of other studies that are of interest on this topic as well. "Others have commented on the various studies. If, as JoeTaxpayer says, this one particular study he mentions does not really exist, there are plenty of others. (And in that case: Did someone blatantly lie to prove a bogus point? Or did someone just get the name of the organization that did the study wrong, like it was really somebody called ""B&D"", they read it as ""D&B"" because they'd heard of Dun & Bradstreet but not of whoever B&D is. Of course if they got the organization wrong maybe they got important details of the study wrong. Whatever.)  But let me add one logical point that I think is irrefutable: If you always buy with cash, there is no way that you can spend more than you have. When you run out of cash, you have no choice but to stop spending. But when you buy with a credit card, you can easily spend more than you have money in the bank to pay. Even if it is true that most credit card users are responsible, there will always be some who are not, and credit cards make it easy to get in trouble.  I speak from experience. I once learned that my wife had run up $20,000 in credit card debt without my knowledge. When she divorced me, I got stuck with the credit card debt. To this day I have no idea what she spent the money on. And I've known several people over the years who have gone bankrupt with credit card debt. Even if you're responsible, it's easy to lose track with credit cards. If you use cash, when you take out your wallet to buy something you can quickly see whether there's a lot of money left or not so much. With credit, you can forget that you made the big purchase. More likely, you can fail to add up the modest purchases. It's easy to say, ""Oh, that's just $100, I can cover that."" But then there's $100 here and $100 there and it can add up. (Or depending on your income level, maybe it's $10 here and $10 there and it's out of hand, or maybe it's $10,000.) It's easier today when you can go on-line and check the balance on your credit card. But even at that, well just this past month when I got one bill I was surprised at how big it was. I went through the items and they were all legitimate, they just ... added up. Don't cry for me, I could afford it. But I had failed to pay attention to what I was spending and I let things get a little out of hand. I'm a pretty responsible person and I don't do that often. I can easily imagine someone paying less attention and getting into serious trouble." "First, let me answer the question the best way I can: I don't know if there are any studies other than those that have already been mentioned. Now, let's talk about something more interesting: You don't need to base your behavior on any study, even if it is scientific. Let's pretend, for example, that we could find a scientifically valid study that shows that people spend 25% more when using a credit card than they do when spending cash.  This does not mean that if you use a credit card, you will spend 25% more.  All it means is that the average person spending with a credit card spends more than the average person paying cash.  But there are outliers.  There are plenty of people who are being frugal while using a credit card, and there are others who spend too much cash.  Everyone's situation is different.  The idea that you will automatically spend less by using cash would not be proven by such a study. When hearing any type of advice like this, you need to look at your own situation and see if it applies to your own life.  And that is what people are doing with the anecdotal comments.  Some say, ""Yep, I spend too much if I use a card."" Others say, ""Actually, I find that when I have cash in my wallet, I spend it on junk.""  And both are correct.  It doesn't matter what the study says the average person does, because you are not average. Now, let's say that you are a financial counselor who helps people work through disastrous financial messes.  Your client has $20,000 in credit card debt and is having trouble paying all his bills.  He doesn't have a budget and never uses cash.  Probably the best advice for this guy is to stop using his card and start paying cash.  It doesn't take a scientific study to see that this guy needs to change his behavior. For what it is worth, I keep a strict budget, keeping track of my spending on the computer.  The vast majority of my spending is electronic.  I find tracking my cash spending difficult, and sometimes I find that when I have cash in my wallet, it seems to disappear without a trace.  :)" I don't think that there is any good way a study can average this and bring a useful result: The core problem is that there are people that will spend more money than they should, if they become technically able to, and the credit card is just one of the tools they abuse for that (similar to re-financing with cash-outs, zero percent loans, etc.).  On the other side, there are people who control and understand their spending, and again, the mechanism of payment is irrelevant for them. Studies measure some mix between the groups, and come up with irrelevant correlations that have no causality. If you think any tool or mechanics got you in financial trouble, think again: your spending habits and lack of understanding or care get you in financial trouble - nothing else. In a world where it is considered cool to 'don't understand math', it is no surprise that so many people can't control their finances. "I thought I'd see if the credit card companies had anything to say about this while trying to get merchants to sign up. I went to visa.com, clicked ""Run Your Business"" in the top nav, then ""Accept Visa Payments"". This page has a ""More benefits of accepting Visa"" link with an overlay (which I can't easily link directly to), which includes these lines: While the average cash transaction is $17, credit card purchases average $70 while debit card purchases average $36.² ² Visa Payment Panel Study (2Q11 to 1Q12 time period); Visa MARS Data: March 2015 – May 2015  That obviously doesn't tell the entire story (I suspect people are more likely to pull out cash when they're just buying a stick of gum, and more more likely to pull out a card when they're buying large electronics), but certainly there is some evidence from the credit card companies themselves that people spend more when using cards, which is one of the aspects they use to convince merchants to accept cards. I think the best evidence that people spend more is that more and more merchants accept cards. Accepting cards comes with some significant costs (though it's important to keep in mind that accepting cash can come with some significant costs as well). I suspect that merchants wouldn't do so unless the increased sales that they get for accepting cards makes up for the fees that they need to pay and the equipment they need to buy to accept them (not to mention the risks of chargebacks and the like)." Unless a study accounts for whether the users are following a budget or not, it is irrelevant to those who are trying to take their personal finances seriously. I can certainly believe that those who have no budget will spend more on a credit card than they will on a debit card or with cash. Under the right circumstances spending with cards can actually be a tool to track and reduce spending. If you can see on a monthly and yearly basis where all of your money was spent, you have the information to make decisions about the small expenses that add up as well as the obvious large expenses.  Debit cards and credit cards offer the same advantage of giving you an electronic record of all of your transactions, but debit cards do not come with the same fraud protection that credit cards have, so I (and many people like me) prefer to use credit cards for security reasons alone. Cash back and other rewards points bolster the case for credit cards over debit cards. It is very possible to track all of your spending with cash, but it is also more work. The frustration of accounting for bad transcriptions and rechecking every transaction multiple times is worth discussing too (as a reason that people get discouraged and give up on budgeting). My point is simply that credit cards and the electronic records that they generate can greatly simplify the process of tracking your spending. I doubt any study out there accounts for the people who are specifically using those benefits and what effect it has on their spending. "One study found that, while people using gift certificates bought no more items than those who used cash, they tended to spend more per item. In ""Study 3"" the paper ""Monopoly money: The effect of payment coupling and form on spending behavior"", sets up a case where shoppers are given $50 in cash and $50 in gift certificates (the leftover of which can be exchanged for cash). They were asked to choose different brands and types of items to buy. They study found that There was no difference in the number of items purchased as a   function of payment form for scrip However means across all product categories show that   participants spent more per item when they were given [the gift certificate]"
there are several reasons you might want good credit even if you could afford to pay for all your expenses in cash. having pointed out all the above reasons to have good credit, it is probably worth noting that many people with good credit choose to not borrow simply because they are more comfortable with the risks of not borrowing (e.g. inflation risk), than they are with the risks of borrowing (e.g. investment volatility). The biggest advantage to small business owners paid in cash is not that it might save the 2 or 3 percent that would go to the credit card company.  The biggest advantage is that they have the opportunity to keep the transaction entirely off the books and pocket the cash without paying income tax or sales tax, especially when no receipt is given, or when it's a service instead of a product being sold, or when it's an approximately-tracked inventory unit going out the door.  Although it's illegal, it's widely done, and it's also often a temptation for employees to try and get away with doing it too. Only reason I can think of is that having a credit card, or several, is handy for buying stuff on-line, or not having to haul around a fat wallet full of cash.    Of course for some of us, getting the cash back and 0% interest periods are nice, too, even if we don't really need the money.  Same as for instance trying to get good mpg when you're driving, even if you could easily afford to fill up a Hummer.  It's a game, really. You have 3 assumptions about the use of credit cards for all your purchases: 1) May be a moot point. At current interest rates that will not make much of a difference. If somebody links their card to a checking account that doesn't pay any interest there will be no additional interest earned. If the rate on their account is <1% they may make a couple of dollars a month. 2) Make sure that the card delivers on the benefits you expect. Don't select a card with an annual fee. Cash is better than miles for most people. Also make sure the best earnings aren't from only shopping at one gas station or one store. You might not make as much as you expect. Especially if the gas station is generally the most expensive in the area. Sometimes the maximum cash back is only for a limited time, or only after you have charged thousands of dollars that year. 3) It can have a positive impact on your credit rating. I have also found that the use of the credit card does minimize the chances of accidentally overdrawing the linked account. There is only one big scheduled withdraw a month, instead of dozens of unscheduled ones. There is some evidence that by disconnecting the drop in balance from the purchase, people spend more. They say I am getting X% back, but then are shocked when they see the monthly bill. Some already mentioned that you could pay with your savings and use the credit card as an emergency buffer. However, if you think there is a reasonable chance that your creditcard gets revoked and that you need cash quickly, here is a simple alternative: "I want to recommend an exercise: Find all the people nearby who you can talk to in less than 24 hours about credit cards: Your family, whoever lives with you, and friends. Now, ask each of them ""what's the worst situation you've gotten yourself into with a credit card?"" Personally, the ratio of people who I asked who had credit cards to the ratio of people with horror stories about how credit cards screwed up their credit was nearly 1:1.  Pretty much, only one of them had managed to avoid the trap that credit cards created (that sole exception had worked for the government at a high paying job and was now retired with adult children and a lucrative pension).  Because it's trivially easy over-extend yourself, as a result of how credit cards work (if you had the cash at any second, you would have no need for the credit). But do your own straw poll, and then see what the experience of people around you has been.  And if there's a lot more bad than good out there, then ask yourself ""am I somehow more fiscally responsible than all of these people?""." "If psychologically there is no difference to you between cash and debit (you should test this over a couple of months on yourself and spouse to make sure), then I suggest two debit cards (one for you and spouse) on your main or separate checking account. If you use Mint you can set budgets for each category (envelope) and when a purchase is made Mint will automatically categorize that transaction and deduct that amount from the correct budget.  For example: If you have a ""Fast Food"" budget set at $100 per month and you use the debit at McDonalds, Mint should automatically categorize it as ""Fast Food"" and deduct the amount from the ""Fast Food"" budget that you set.  If it can't determine a category or gets it wrong, you can just select the proper category. Mint has an iPhone (also Android and Windows phone) app that I find very easy to use. Many people state that they don't have this psychologically difference between spending cash and debit/credit, but I would say that most actually do, especially with small purchases.  It doesn't have anything to do with intellect or knowing that you are actually spending money.  It has more to do with tangibility, and the physical act of handing over cash.  You may not add that soda and candy bar to your purchase if you have visible cash in your wallet that will disappear more quickly.  I lived in Germany for 2 years before debit cards were around or common.  I'm a sharp guy and even though I knew that I paid $100 for the 152 DM, it still kind of felt like spending Monopoly money, especially considering that in the US we are used to coins normally being 25 cents or less and in Germany coins are up to 10 DM (almost $10) and are used more frequently than paper." The only card I've seen offer this on credit card purchases is Discover.  I think they have a special deal with the stores so that the cash-over amount is not included in the percentage-fee the merchant pays.  (The cash part shows up broken-out from the purchase amount on the statement--if this was purely something the store did on its own without some collaboration with Discover that would not happen). The first few times I've seen the offer, I assumed it would be treated like a cash-advance (high APR, immediate interest with no grace period, etc.), but it is not.  It is treated like a purchase. You have no interest charge if you pay in full during the grace period, and no transaction fee.  Now I very rarely go to the ATM. What is in it for Discover?  They have a higher balance to charge you interest on if you ever fail to pay in full before the grace period.  And Discover doesn't have any debit/pin option that I know of, so no concern of cannibalizing their other business.  And happier customers. What is in it for the grocer?  Happier customers, and they need to have the armored car come around less often and spend less time counting drawers internally. Lots of places in the US do it.  Although the way that they usually phrase it is 'prices reflect a x.x% discount for cash' since most of the credit card companies have an agreement that says you cannot charge a surcharge if someone is using a credit card.  So they get around it by giving a discount for cash.   effect is the same, but it skirts the letter of the agreement My view is from the Netherlands, a EU country. Con: Credit cards are more risky. If someone finds your card, they can use it for online purchases without knowing any PIN, just by entering the card number, expiration date, and security code on the back. Worse, sometimes that information is stored in databases, and those get stolen by hackers! Also, you can have agreed to do periodic payments on some website and forgot about them, stopped using the service, and be surprised about the charge later. Debit cards usually need some kind of device that requires your PIN to do online payments (the ones I have in the Netherlands do, anyway), and automated periodic payments are authorized at your bank where you can get an overview of the currently active ones. Con: Banks get a percentage of each credit card payment. Unlike debit cards where companies usually pay a tiny fixed fee for each transaction (of, say, half a cent), credit card payments usually cost them a percentage and it comes to much more, a significant part of the profit margin. I feel this is just wrong. Con: automatic monthly payment can come at an unexpected moment With debit cards, the amount is withdrawn immediately and if the money isn't there, you get an error message allowing you to pay some other way (credit card after all, other bank account, cash, etc). When a recent monthly payment from my credit card was due to be charged from my bank account recently, someone else had been paid from it earlier that day and the money wasn't there. So I had to pay interest, on something I bought weeks ago... Pro: Credit cards apparently have some kind of insurance. I've never used this and don't know how it works, but apparently you can get your money back easily after fraudulent charges. Pro: Credit cards can be more easily used internationally for online purchases I don't know how it is with Visa or MC-issued debit cards, but many US sites accept only cards that have number/expiration date/security code and thus my normal bank account debit card isn't useable. Conclusion: definitely have one, but only use it when absolutely necessary. "A credit card is basically a ""revolving"" loan, in which you're allowed to borrow up to a certain amount (the limit), and any time you borrow, you pay interest.  If you were to *borrow* $100 to pay for something via a credit card, you'd have a $100 balance on the card. If you then pay $70 cash to the card, there would be $30 remaining.  That $30 balance could accrue interest. The timing of that interest charge could vary. The 20% you've quoted is almost certainly ""APR,"" of which the ""A"" stands for ""annual,"" so that 20% would be an annual rate.  It makes the most sense, mind you, to keep a minimal balance on a credit card, as the interest rate is higher than most other loans." Your question is based on a false premise. Debit cards are more popular in the US than credit cards are. Indeed it seems to be the non-US part of the world that is big in credit cards. See here for example "I have some money invested on Merrill Edge. 2 days ago I purchased some mutual funds with most of the rest of my money in my account. I logged in today to see how it did, and noticed that there are 3 sections: Priced Investments, Cash &amp; Money Accounts, and Pending Activity. In the Cash &amp; Money section, there shows a negative balance of Cash (let's say -$1,000) and a positive ""Money Account Value"" (let's say +$1,100).  The ""Money Account"" appears to be made up of $1 shares of something called ""ML Direct Deposit Program"". However, even though the mutual fund purchase was made 2 days ago, and the shares of the mutual funds are officially in my account, I'm still showing all of my ""Money Account"" shares ($1000). The balance sheet effectively makes it look like I somehow needed to have ""sold"" back my money account shares, converted them to cash, and then bought the funds. I'm hoping that isn't the case, and for some reason, there is a multiday lag between me buying stock and money getting deducted from my ""Money Account"". Hope that all makes sense.  TLDR: what's the diff between a Cash account and Money Account that's filled with shares of "" ML Direct Deposit Program""?  Edit: Today the cash and money account offset by equal values equal to one of my mutual fund purchases." "Why bother with the ETF? Just trade the options -- at least you have the ability to know what you actually are doing. The ""exotic"" ETFs the let you ""double long"" or short indexes aren't options contracts -- they are just collections of unregulated swaps with no transparency. Most of the short/double long ETFs also only attempt to track the security over the course of one day -- you are supposed to trade them daily. Also, you have no guarantee that the ETFs will perform as desired -- even during the course of a single day. IMO, the simplicity of the ETF approach is deceiving."