Credit Cards Cause Spending like Seat Belts Cause Cancer

by JT McGee

spending more, credit cards, versus, cashAlright, so there are few universal truths in personal finance. The difference in spending patterns between people who use cash and those who use a card, credit or debit, is probably true—people who use plastic are more likely to spend more on average.

However, I’m not too sure if I can dig the statistics in whole.

In trolling Dave Ramsey’s site for more content (epic success, by the way) I found an article about how McDonalds saw orders increase by 47% when customers used credit cards.

To put it simply, and less accurately, for every $2 that a cash-user spends at McDonalds, a credit card user spends roughly $3. (It’s actually $2.94, but you get the point.)

Using stats like this really bothers me; this statistic hardly shows the full picture.

The Unbanked

In the United States we have 56 million people who are known as the “unbanked.” In being “unbanked,” they run their lives on cash—they don’t have a savings account, checking account, or any of the various tools that are available to them. As a general rule of thumb, these people are lower-income, and generally poorer than your average American.

The “unbanked” make up roughly 17% of the population of the United States. I suspect that they also make up a greater percentage of McDonald’s transactions since McDonald’s is:

  1. Everywhere
  2. Inexpensive
  3. Largely considered, in economic terms, an inferior good.

On the other hand, we have the “banked,” I guess you could call them. They have a savings account, maybe a checking account, and maybe even other financial products at their disposal—credit cards, lines of credit, and everything else including the kitchen sink. They make up the 83% of the population that isn’t “unbanked.”

According to the Federal Reserve Bank of Boston, 80 percent of consumers currently own a debit card, and 78% have a credit card. Basically, if you have a bank account, you also have access to some form of plastic.

Good Statistics, Bad Application: Seat Belts Cause Cancer

I can’t seem to wrap my head around the idea that the average cash-using shopper is the same as the average credit-using shopper. We’re not drawing very logical conclusions in insisting that the same people started to spend more once they could use plastic because we don’t even know if these are the same people.

We also didn’t discount for the realization that people who use cash are more likely to be “unbanked” and more likely to be poorer, or that people swap between cash and credit depending on their ticket size.

The assumption that credit card users spend more than cash users so credit cards must be the reason they spend more requires really faulty logic.

I can make a logically similar argument and say that seat belt usage causes cancer. Of course, seat belts don’t actually cause cancer–people who use seat belts live longer, on average, and living longer does increase your risk of getting cancer. But no one would stop using a seat belt because it causes cancer. That’s silly.

Spending more with credit

I’m sure people have a tendency to spend more when they use a credit card than when they use cash. I tend to savor my cash because I hate having to go to ATM. Additionally, I won’t always swipe a card for a purchase of less than $5 because I feel like a loser. So I use cash.

However, if it comes up to $10, I’m swiping it. I could say that when I use a credit card I spend two times more. But this is ridiculous. I spend the same amount—err, I intended to spend both $5 and $10–it’s just that when my ticket went over $10 I used my card. When it was only $5, I used cash.

So, in the end, people probably do lower their barriers to purchases with a credit card, but I have a really hard time believing that credit card use prompts a 47% larger purchase. This is correlation, not causation, and on small-money purchases like fast-food it’s infinitely biased by the fact that people don’t want to be a scrooge and swipe a $5 purchase.

We can’t ignore the bias in earnings, income, and data sample between the unbanked and banked spenders, either, though it’s probably unnecessary in getting to the bottom of why adding a credit card terminal increases per-ticket purchase amounts.

{ 11 comments… read them below or add one }

Dave @ Money In The 20s June 27, 2011 at 09:04

Wow, I just took a look at that article on Dave Ramsey’s website. He doesn’t even cite any evidence from the study and just says:

“A study of credit card use at McDonald’s found that people spent 47% more when using credit instead of cash. This is money you could have saved!”

I think you are right with that a lot of credit card users feel bad about swiping a card for a $0-5 bill, so they pay cash. I would love to see the details of this study to see how it was actually conducted because I am very skeptical of the results.


JT June 27, 2011 at 12:24

I’m not even sure it was a study. I think it was basically McDonald’s saying that average ticket orders for credit card users were 47% higher than average for cash users. The data, from what I understand, wasn’t normalized.


Kellen June 27, 2011 at 10:53

I’ve seen different studies with different set ups that show that people do spend quite a bit more with credit cards than with cash. The psychology behind it says that your brain doesn’t register the pain of payment quite so much with a credit card as it does when you physically hand over cash.

I hear a lot of people explain that they feel like using cash helps them curb spending because of handing over the green stuff – personally, I think since I’ve used plastic for so long, seeing the total price rung up is just as painful. And I don’t like using cash since I am terrible at keeping track of it. I’ll take $40 out the ATM to go to a summer festival and come home with just a few cents and have no idea where it all went!


JT June 29, 2011 at 13:22

Yeah, this was supposedly a popular study that found the same thing (people spend more with credit cards) but the methodology definitely makes it fall short of a study.

I think it’s easy to spend more with a credit card, but 47% is just too darn high to make any real sense. I don’t buy it. Maybe 2% or 3%, but not 47%.


Jeff Reed June 28, 2011 at 09:29

I’m glad you question the statistics here. I admit that I sometimes see a random stat and accept it without reservation (shame on me; I’m a cynic at heart). I like your seat belt analogy. Just because there appears to be some evidence to support the claim doesn’t mean that we should buy into the notion without deeper thought. Once someone “buys-in” to a false or unproven premise they are difficult to convince otherwise (Congress and The Electorate come to mind).


JT June 29, 2011 at 13:23

Thanks for your comments, Jeff.

I can’t help but to agree with words in the parenthesis. “Congress and The Electorate come to mind.”

Although, I do wish someone would take away Congress’ credit card LOL


Amanda L Grossman June 28, 2011 at 16:08

I like your thoughts on the unbanked Americans (by the way–I had no idea there were so many!). And it makes sense that if unbanked Americans pay with cash and if unbanked Americans have less money then it follows that the stats may be skewed. But I also still believe that there are a decent amount of affluent people who use cash, and also that in general when you use credit cards you probably spend more money.

Funny thing is, I still use credit cards because I love the reward points! I’ve thought about experimenting with it, seeing how I cannot bear parting with money….


JT June 29, 2011 at 13:21

Isn’t it scary, Amanda? How do we have so many people without even a basic savings or checking account?

The sad thing is that many of these people will go to work and put in several hours just to cover the cost of cashing their check later in the month. 😮


Ashley @ Money Talks June 28, 2011 at 17:44

great article. Love it!

I understand why people who spend cash would spend less and if you have a problem with spending then it’s something you should try out. however, I don’t think across the board every single person spends more with a card. That’s what a budget is for… so that you don’t overspend.


JT McGee July 3, 2011 at 07:42

Exactly. Plus 47%? I mean, come on…that’s way too much to just be psychological.


Sam@CreditCardShoppe June 3, 2013 at 03:16

Interesting post. I very rarely carry cash anymore. We are very good with sticking to our budget and when we swipe our card, I am also able to get a record of where I’ve spent my money. When I use cash, it can be cumbersome to keep track of it. I can see though how it would be easier for many people to spend more on a credit card though than with cash as they cannot physically see their stash diminishing.


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