I recall a few years ago a bit of news came out that linked coffee with cancer. As a student of the scientific method, I immediately asked one question. Is this a false correlation? I have to say I nailed that one. A few months later, the claim was withdrawn. It turns out the population of coffee drinkers contains a higher percentage of smokers than non drinkers. This statistical difference was high enough that it was easy to understand (and predict) the conclusion that followed. Once this occurred to the researchers, it followed that they acknowledged their error and withdrew their anti-coffee remarks.
Another correlation – TV makes you fat. No doubt there are the proverbial couch potatoes who sit in front of the tube, drink soda, and eat snacks. Yet, TV has the opposite effect on me. I try to run 20 miles a week, all of which are on a treadmill, with a TV propped in front. I tried reading and that was a mistake. Books on tape? Great in the car, but on the treadmill, not so much. TV takes just enough of my attention so I can follow the story and keep a good pace. So, for me, another bad correlation.
What does all this have to do with credit card spending? Turns out, plenty. Studies show that people spend 12-18% more when using credit cards than when they spend with cash. I’ve read this and even though I’ve never seen any raw data to back it up or any details of the study, I’ll concede it may be true. But what is the cause and what is the effect? I’ll ignore the reasons to use cards, the rebates, extra warranty, etc, and instead focus on the claim itself. I charge all my gas purchases. Would I buy less gas if I paid cash? Groceries? I’ll be the first to admit I can spend $100 more at Costco than I plan, but is that money wasted or well spent? I’ll come home with the start of quite a few meals. The pack of baby back ribs for the BBQ, the shrimp that are just about half the price at my local supermarket, you get the idea. How is the spending an issue just because it wasn’t planned? Do these studies differentiate between spending on say, magazines, candy bars, and gum vs food that becomes a meal? If I buy bathroom tissue or Kleenex on sale saving both money and the gas of an extra supermarket visit, how does that purchase get characterized? If the unplanned purchases are truly wasteful wouldn’t I be throwing food away? If not, then what is the consequence of the spending more on the cards? If not gas, not food, then maybe clothes? I actually don’t remember the last clothing purchase I made for myself. My daughter, however, is still growing, so new sneakers and shoes every year. New clothes for her before school starts every September as well. But again, I can choose between going around with a wad of cash or just sticking to the cards. If you have a moral objection to credit card use, I understand, but if not, I think the idea of cards causing to to spend more is more hype than reality.
What do you think? Are you tempted by the plastic?