The Borrowers
Painless spending can hurt pocketbooks
Using a credit card is easy. Writing a check is more time consuming. Host Tess Vigeland talks with personal finance columnist Jason Zweig about how different ways of paying can affect how much we spend.
Shopper Janeen Devine, right, writes a check for her purchases at Cut Rate Toys in Chicago. (Tim Boyle/Staff)
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TEXT OF INTERVIEW
Tess Vigeland: Debit cards were created as a replacement for writing checks. Personally, I write about one check every two or three months at most these days. I'm hardly alone -- just in the last three years check use has dropped by almost half. Retailers took notice of the trend. This week Whole Foods announced a pilot program where three of their stores will no longer take checks. Processing them is expensive and time consuming.
But some people use checks not just as a method of payment, but as a way to save money. Because the act of check-writing can actually make you spend less. It's true!
Jason Zweig is a personal finance columnist for the Wall Street Journal and an expert on the science behind our money decisions. Jason, welcome back to the show.
Jason Zweig: It's good to be with you Tess.
Vigeland: I wonder if this is a generational thing at all. I mean, I remember going to the store with my mom and she would always pull out the checkbook, but I never do. And I wonder if that is reflected at all in how we spend, behaviorally.
Zweig: Yeah, I think it is. I think you've really put your finger on it, Tess. It is a generational thing. You know, people probably 50 or 55 and older are a lot more accustomed to paying for things with checks, because that's how they grew up paying for them. And younger people use credit cards. Credit cards are actually called "money" by younger people and older people call them "credit cards."
Vigeland: Big difference.
Zweig: Yeah, it is a big difference.
Vigeland: Can you talk about what the connection is between how much we spend and how easy it is to pay for the things that we buy. What is the difference psychologically between plunking down a piece of plastic and actually having to sit there and write a check?
Zweig: Yeah. Well let's talk about four things: Pain, pleasure, today and tomorrow. When you pay with a credit card, you get the pleasure of consuming or purchasing the item, but you don't have to deal with the pain of paying for it until tomorrow or, for many people, never. And there's roughly 30 years of evidence to suggest that people will spend more money with plastic than they will with a check or with cash.
Vigeland: Does this sort of thing apply to something as simple in our daily living as the grocery store as well?
Zweig: Well, you bet it does. There was a study done in 2003 of about 200 shoppers at a supermarket in Colorado. And it found when people bought necessities, it didn't matter how they paid for them. They would spend the same amount of money whether they used a check, cash or a credit card. But when people splurged on stuff, it was a whole other thing. People who paid with cash spent an average of $9, people who paid with a check spent an average of $11 and those who used credit cards spent almost $19.
Vigeland: Whoa!
Zweig: Yeah. Twice what the cash buyers spent.
Vigeland: Is there a way to change our thinking so that when we plunk down that plastic, we do think about it? Or are we hardwired to think about it in the way that you described already.
Zweig: Well, I mean there's no doubt that the human brain prefers immediate gratification. But what you can do is you can build in some extra steps. What you want to do is you want to take an automatic behavior and turn it into a deliberate behavior. And you want to give yourself a chance to do a double take. You can put a post-it note on your credit card, on the back of it maybe.
Vigeland: Ask yourself, do you really need this?
Zweig: Yeah. That's not a bad little technique. The other thing you can do of course, is you can take the time to make a shopping list before you ever go shopping. You could also experiment and just leave your credit card at home and bring your checkbook or cash. Another thing that some research suggests might work is go shopping with cash, but bring big bills with you.
Vigeland: I hate spending those.
Zweig: Yeah, people tend to be more reluctant to break a large bill, and it may make you think twice about what you're buying. And then the final thing: Don't go shopping when you're hungry.
Vigeland: I know that from personal experience.
Zweig: Yeah. It's a good idea.
Vigeland: Jason, always fun to talk to you and try to reach inside our brains to figure out why we do what we do with our money. Most appreciated, thanks.
Zweig: Thank you Tess. A pleasure as always.
Comments
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From I travel a lot, 09/26/2009
Your guest Jason spoke of how much more people spend with credit cards than with cash, and I wouldn't deny that this phenomenon supports his pleasure/pain/today/tomorrow thesis. But I think he's missing a much stronger influence: When I'm getting ready to pay for a purchase, at the register I decide how to pay for it based largely on how much it's going to cost. If it's smaller than $10 I feel a little silly pulling out my card; I'm much more likely to reach into my pocket and pay for it with cash. If it's greater than $100, either I don't have that much cash on me or at least it'll wipe out much of my walking-around money, so I use my card. In between those amounts, it depends.
The numbers others use for this decision will vary, but I predict most people go through a similar decision. In other words, yes, to some extent people buy more because they can put off paying for it; but to a much greater extent, when they buy something they really need, they pay for the larger items by credit card and the smaller items by cash because that's what credit cards are for.
From Athens, GA, 09/26/2009
If Tess only writes a check every 2-3 mos., she must be paying utility bills by automatic draft. I'm surprised you didn't make the connection b/w this and your first story, as the risk of overdraft increases, and good luck getting fees or payments back if the utility company makes a mistake, or your outside hose was left running. Meanwhile your statement goes online-only, so you won't be able to see it when your power is turned off. Watch regulators fold when the boomers pass on and companies start to compel automatic drafts and paperless statements. I'd like to see Mktplace do a piece on the dangers of giving all of these cos. automatic and direct access to our bank accounts.
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