Yet Another Reason Cash is Wiser than Credit Cards

Guest Post by David Rodwell

You know by now that paying with cash is almost always a better proposition than buying with credit cards. Credit cards can cost you significant amounts of interest charges, to say nothing of potential late fees if you should miss a payment.
Some consumers believe that simply paying off their credit cards each month is enough, that avoiding interest and fees levels the playing field. According to some recent studies published by Promothesh Chatterjee and Randall Rose, professors at the University of Kansas and University of South Carolina, respectively, that may not actually be the case.
The researchers studied consumers in the context of a phenomenon known as the “pain of payment.” The idea behind the pain of payment isn’t new; at its most basic, it’s the idea that spending money engenders an emotional response, and that response contributes to buying decisions.
What they discovered was that cash customers were much more familiar with the pain of payment than credit card customers. Because credit card purchases actually divorce the consumption of a product or service with its payment, credit card customers made different purchase decisions.
Here are some of the specific findings from the research:

When tested after the fact, credit card customers were more focused on benefits. They responded quicker to benefit-related words; they were more likely to choose products with superior benefits over products with a better price.

Cash customers, on the other hand, were more focused on cost. They responded quicker to cost-related words. They were more likely to choose products based on costs. They also considered a wider range of cost factors than credit card customers; for example, they looked at the cost of delivery or installation, warranty charges, and even the cost (in time) that it would take for delivery of the product.

Cash customers chose products based on cost. They were more likely to choose a lower-priced product, even when faced with a product with far superior benefits.

Credit card customers, on the other hand, made more benefit related choices. They were more likely to be indulgent. They more often chose high-image products, even when lower-cost products were available.

A number of factors can trigger a credit card purchase. Even if you plan on paying with cash, there are things that can convince you to use a credit card to make a purchase. The presence of a credit card sticker on the entrance doors, or even a sign at the register can increase your likelihood of using credit.

Customers using gift cards acted like customers using credit cards. This goes to the “pain of payment” theory. With a gift card, like cash, value decreases immediately. Unlike cash, however, it’s not usually immediately observed.
What all this means for you is this: making cash purchases means you’re more likely to choose lower-cost items. In many of your day-to-day purchases, using cash can save you money in this regard. For those items where quality is your main concern, it’s probably best to switch out for a credit card instead.


David Rodwell is a seasoned writer in business and personal finance, taking a particular interest in payment processing. You can find more of his articles located at CreditCardProcessing.net.