How Cash Saves You on More than Just Interest

Smart consumers know that making purchases on credit costs you more money in the long run. Sure, you might make a given purchase with the intention of paying off your credit card before the billing cycle ends, but often it just doesn’t happen. Pulling out a credit card often means paying at least a few dollars more for many purchases.

There is another, much more subtle way that using a credit card will cost you more money, however. Professors Promothesh Chatterjee and Randall Rose of University of Kansas and University of South Carolina respectively recently published some research that suggests your choice of payment method can actually impact the product you wind up choosing.

The credit-benefit connection

One of the aspects to payment method that the study focused on was the question of benefits. What they discovered was nothing short of revolutionary.

As it turns out, customers who are primed to pay with a credit card are more concerned with a product’s benefits than with cost. This demonstrated itself in several different ways during the study. For example:

  • Credit customers had greater recall after the transaction of benefit-related words used during the transaction.
  • Credit card customers responded quicker to benefit words than cash customers.
  • Credit card customers made more indulgent, high-image product choices, suggesting that they were focused on benefits over other factors.

What this means, at least in part, is that when paying with a credit card you’re more likely to make your purchase decisions on the merits of the product itself and what it can do for you, rather than on other factors such as cost.

The cash-cost connection

Likewise, cash customers weren’t nearly as keen on benefits as they were on cost. The researchers found that:

  • Cash customers responded quicker to cost aspects of a given product.
  • Cash customers had greater recall after the transaction of cost-related words.
  • Cash customers were more likely to identify cost-related details including things such as price, delivery or installation cost, warranty cost, and even delivery time.
  • Cash customers were more likely to choose a less expensive product, even when facing inferior benefits.

Likewise, cash customers weren’t as quick to respond to benefit-related metrics, as the credit card customers did.

Choosing the right payment method

As consumers, then, the question becomes this: how do we make responsible purchase choices? If method of payment impacts the product we choose, should we always pay cash in order to get the most savings?

Certainly that’s an option. However, you need to remember this: sometimes, you’re looking for a higher-quality product. That means more benefits. That means you’re going to pay a little more. When you pay with cash, you’re more likely to miss those benefits in favor of cost-related details.

Ultimately, it’s up to the consumer as to how best to make their purchases. Credit cards can be convenient, but this research suggests that they may wind up costing you more through simple product choices (to say nothing of credit card interest).

This was a guest post from David Rodwell, who is an experienced writer who covers everything from business to personal finance. Check out his site CreditCardProcessing.net for similar articles!

Some other reviews you might be interested in

Thank you for reading this article. If you like my blog, consider subscribing to Finance Product Reviews via RSS or email. You can also subscribe via Facebook or Twitter by clicking on those icons on the top. Thank you!

Disclaimer: Finance Product Reviews is an independent website. Although we may have advertisement relationship with financial institution we review, they do not influence our decision or rating of products. Contents of this site are not provided by any financial institution, banks, brokerages or credit card issuers. Opinions expressed here are author’s alone and are not reviewed, approved or otherwise endorsed by the product owners.

Disclosure of Material Connection: Some of the links in this web site are “affiliate links.” This means if you click on the link and purchase the item, I will receive an affiliate commission. Regardless, I only recommend products or services I use personally and believe will add value to my readers. I am disclosing this in accordance with the Federal Trade Commission’s 16 CFR, Part 255: “Guides Concerning the Use of Endorsements and Testimonials in Advertising.”
Related Posts Plugin for WordPress, Blogger...

5 Comments

  1. I’m not too shocked by this news. I believe I read a study a few years back that discussed how credit card users spend 16-18% more than people that pay with cash.

    Consumers always think we’re able to outsmart the credit card companies and take advantage of all of their great rewards, but at the end of the day the credit card companies are the ones laughing as they’re headed to the bank (about to deposit all of your CASH).

       0 likes

    Reply
  2. David RodwellApril 24, 2012 at 12:59 pm

    Very true, WorkSaveLive. Swipe fees alone are in the tens of billions each year.

       0 likes

    Reply
  3. This doesn’t surprise me as credit feels less tangible than cold hard cash, and therefore we feel less attached to it. Personally, $300 gone with a swipe of my credit card doesn’t quite impact me as much as handing over $300 in cash.

       0 likes

    Reply
  4. That’s really interesting!

    I feel like I am stingy, and I use credit cards. I always look for the best deal, and I look to get my rewards on my credit card. I make sure to ALWAYS pay it off.

       0 likes

    Reply
  5. […] How Cash Saves You on More than Just Interest by Finance Product Reviews […]

       0 likes

    Reply

Leave a Reply to WorkSaveLive Cancel reply

Your email address will not be published.