Have you ever wondered if how you pay for something affects how much you’re willing to spend? Is it harder to part with cash than to slide your credit card through the machine? You betcha!
A study fittingly entitled Monopoly Money in the Journal of Experimental Psychology reveals that shopping with cash discourages spending, while using credit or gift cards actually encourages it.
Researchers Priya Raghubir (New York University) and Joydeep Srivastava (University of Maryland) say that “using a less transparent form of payment, such as a credit card or a gift card, lowers the vividness with which one feels that one is parting with real money, thereby encouraging spending …”
If you did not have access to credit of any kind — no credit cards, no line of credit, no overdraft protection, no loans — would you be as willing to drop gobs of your hard-earned money on stuff knowing full well you wouldn’t be able to pay the rent or mortgage? Or is it the fact that you can defer feeling the pain of payment that lets you convince yourself that you can have that shiny new somethin’-or-’nother?
I’ve worked with a lot of people who whine about how much debt they have. They sigh despondently when they consider that they may never shake free of the burden. But those same people are quite willing to swipe their cards to buy a snappy new pair of sunglasses.
People are always promising themselves that they will stop using their credit cards until their debt is paid off. In the end they’re left with a trail of broken promises. If you’re prone to forgetting the reality of your financial circumstances when the gimmes grab you, this next idea is for you.
Make yourself a credit card condom, and every time you pull out your credit card you’ll be reminded of what you’re doing relative to your current financial situation.
What’s the magic? A credit card condom is an envelope into which your card slips snugly, which carries a pertinent message to stop you from going further into debt. If you’ve ever stayed in a hotel, it looks a lot like the sheath they slip your room key-card into. But instead of a logo, your credit card condom will carry a message designed to make you stop and think:
- Do you have the money to pay this purchase off in full when the bill comes in?
- You already owe $2,500 on this card.
- Is this a need or a want? You’ll have to come up with a message that works for you. Perhaps it’s a message that reminds you of your goals.
- You’re trying to save $2,600 for that trip down south next winter. Will buying this (whatever) get you closer to that goal?
- You’re setting up an RESP. Spend now, or use this money to prepare Baby Kris for the future!
- You want to be debt-free in nine months? Instead of buying this, make a payment on your debt!
You can also make your credit card condom something you can use to track how you’re doing. Let’s say you decide you want to have $1,000 saved for an emergency by the end of the year. Write your goal on your credit card condom. Each time you choose not to spend money on the card, move that money to your emergency fund and add it to your total on your credit card condom.
While you’re at it, make yourself a debit dinger (Australian slang for condom) into which you can slide your debit card so that each time you pull it out to make a purchase you’re reminded of something that is more important than blowing bucks on bull.
The point of the credit card condom or debit dinger is to keep you conscious of what you’re trying to accomplish so the numbing out that comes with using plastic doesn’t happen to you. It will help you to fend off the impulsive purchases by reminding you about what’s really important to you. It’s shopping with protection!
Worth 1,000 words
If you need more of a reminder than words provide, create a credit card condom or a debit dinger with a picture of whatever it is you’re trying to achieve: A picture of a beautiful house if you’re saving for a down payment, a picture of a gorgeous beach if you’re setting aside money for a vacation, or a picture of your son or daughter if you’re trying to build a school fund.
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