topic Re: Credit Cards and Financial Behavior- any correlation? in Personal Finance

Credit Cards and Financial Behavior- any correlation?

Anonymous — Tue, 31 May 2016 14:48:45 GMT

I was wondering if anyone had any studies or research that tied credit card usage and churning to behavior/individual thought about having cards to begin with.

I ask because I started trying some of the Dave Ramsey method of cash Envelopes and I found myself to be much more of a penny pincher than I was with a debit/credit card. Granted it's only been a few weeks and I am actively working on paying down debts, but still it was an observation I had that psychologically I had a tougher time justifying more expenses using cash than I did with a card, even going out of the way as to avoid spending or using numerous coupons to save.

I was wondering if there was a correlation. Do you feel there is one?

Re: Credit Cards and Financial Behavior- any correlation?

Anonymous — Tue, 31 May 2016 15:09:35 GMT

Those with higher credit scores tend to use their credit more responsibly.

Just look at individual card statistics on Credit Karma.

For example, here are some stats for Capital One Quicksilver

https://www.creditkarma.com/reviews/credit-card/single/id/coCash

Sample size was 964.

Check out other cards that may have stats.

Re: Credit Cards and Financial Behavior- any correlation?

RonM21 — Tue, 31 May 2016 16:18:39 GMT

@Anonymous wrote:
Those with higher credit scores tend to use their credit more responsibly.

Just look at individual card statistics on Credit Karma.

For example, here are some stats for Capital One Quicksilver
https://www.creditkarma.com/reviews/credit-card/single/id/coCash

Sample size was 964.
Check out other cards that may have stats.

That makes a lot of sense. For those of us who had or are repairing credit, it was usually some recklessness in how we handled our financials that got us into that situation.

Re: Credit Cards and Financial Behavior- any correlation?

UncleB — Wed, 01 Jun 2016 13:12:15 GMT

@RM21 wrote:
@Anonymous wrote:
Those with higher credit scores tend to use their credit more responsibly.

Just look at individual card statistics on Credit Karma.

For example, here are some stats for Capital One Quicksilver
https://www.creditkarma.com/reviews/credit-card/single/id/coCash

Sample size was 964.
Check out other cards that may have stats.

That makes a lot of sense. For those of us who had or are repairing credit, it was usually some recklessness in how we handled our financials that got us into that situation.

Recklessness is the cause of problems in many cases; other times it can be due to situations beyond our control, such as medical expenses or a job loss.

I'll add that I was once told by the owner of a small shop that credit card merchant fees were significant (for him) but that people who paid with plastic tended to spend more on 'extras' that cash/check customers didn't pick up. He said that for him the extra sales (and add-ons) made up for the fees.

I'm fairly disciplined (I use coupons and tend not to impulse-buy) but when I'm spending cash even I'm a bit more thoughtful about purchases.

That being said, when I "do the math" I always find that I still do pretty good with cash rewards.

Re: Credit Cards and Financial Behavior- any correlation?

CatOfSpades — Thu, 02 Jun 2016 19:15:25 GMT

Recklessness and not paying attention was always my problem. I found that actually following my budget and interacting with it throughout the month (by logging all of my transactions) has solved the majority of my spending issues. I'm still debating on what to do with extra money - right now I just spend it. LOL!

Re: Credit Cards and Financial Behavior- any correlation?

Anonymous — Thu, 02 Jun 2016 19:37:51 GMT

@Anonymous wrote:
I was wondering if anyone had any studies or research that tied credit card usage and churning to behavior/individual thought about having cards to begin with.

I ask because I started trying some of the Dave Ramsey method of cash Envelopes and I found myself to be much more of a penny pincher than I was with a debit/credit card. Granted it's only been a few weeks and I am actively working on paying down debts, but still it was an observation I had that psychologically I had a tougher time justifying more expenses using cash than I did with a card, even going out of the way as to avoid spending or using numerous coupons to save.

I was wondering if there was a correlation. Do you feel there is one?

For myself personally, it was the opposite. When I use my cards, I am very careful and account for all of my spending. when I use cash, I burn through it like fire. I have never done a cash envelope thing though. I perfer to use credit cards and use mint for my "envelopes" I have not used cash in the last 3 months for any purchase. Not even change

Re: Credit Cards and Financial Behavior- any correlation?

Anonymous — Sat, 04 Jun 2016 15:37:24 GMT

@BadKarma, sounds like the envelope method is working well for you!

My parents used the envelope method when I was a kid, and it seemed to work well for them as well. Personally, I use a mix of cash & cards. I'm used to using debit cards, and have now switched to using reward credit cards in the same manner. In other words, I only buy things I have enough money for in my bank account. I like to use cash primarily for fun and entertainment and put most of my regular expenses on cards. And I base my budget on my income and typical spending patterns. I much prefer to budget electronically (i.e. with money that's in my bank account) rather than the envelope system, as that ensures I won't lose the envelopes!

Re: Credit Cards and Financial Behavior- any correlation?

Anonymous — Wed, 08 Jun 2016 03:31:26 GMT

I think having a budget and sticking to it is the key. My dh and I are relatively new to using credit cards for the rewards. We have always had excellent credit, but just used our debit cards mostly and reserved our cc for trips or the ocassional 0% offer. It had never occured to me that we could be making money using them for our everyday spending. We spend the same amount of money as we always did, but now we are earning extra money through the cash back.

So for us it doesn't seem to matter because we are still living within our budget no matter what the method of payment used. I do think credit cards can be a bad thing for some people especially if they have a hard time living within their means. We use YNAB for budgeting and I can definitely reccomend it.

Re: Credit Cards and Financial Behavior- any correlation?

Anonymous — Wed, 08 Jun 2016 13:20:01 GMT

I have done an exercise of this in a different way. For (2) months I was 100% cash, and I mean that for all purchases that were not paying bills (gas, food, eating out, bars, et all). I had receipts for everything and totaled those (2) months. After that I went 100% card only for (2) months and added that up. I actually spent less with 100% card than 100% cash. With the cash route once I got down to a certain level I would immediatley hit the ATM to "restock the shelves".

Most of us here are of an age that we are no longer tempted with foolish expenses and can soundly differentiate a "want" from a "need". As such we can responsibly use credit, stay out of debt, and utilize the advantages in life that comes with paying credit versus cash.

Oh, in short, F Dave Ramsey. The man is a hypocrite. I will admit his methods have helped families become solvent and promotes the premise of a debt free life but the man is a damn hypocrite once away from the media.

Re: Credit Cards and Financial Behavior- any correlation?

bada_bing — Wed, 08 Jun 2016 17:08:31 GMT

There are a couple of ways credit cards can have an influence that is detrimental to

a person's finances. The obvious one is facilitating overspending on spur of the moment

items. That obviously happens to some people and can be a serious enough issue to

cause serious debt.

The influence that is a bit harder to quantify is the idea that credit card limits are a suitable

replacement for an emergency fund. You see that idea floated on the forums in various

ways all the time. To what extent people are changing their longer term financial plans

because they feel comfortable with credit cards as their primary back up for shortfalls is

hard to say, but it seems fairly common. Probably more people end up in credit card debt

due to "emergencies" than from frivolus overspending, so anything that detracts from good

savings habits is definitely an issue.

Re: Credit Cards and Financial Behavior- any correlation?

UncleB — Wed, 08 Jun 2016 19:25:11 GMT

@bada_bing wrote:

The influence that is a bit harder to quantify is the idea that credit card limits are a suitable
replacement for an emergency fund.

I agree with this completely.

Also hard to quantify is exactly what defines "emergency"? In my own case I have some money in cash (in my home), some spread over a couple of modest savings accounts, and I have a collection of silver bullion (I consider it both a hobby and a way to invest).

In my own case if an unplanned major expense were to come up I would probably go to my credit cards first, simply because it's relatively low-hassle and I prefer to keep my cash for situations that absolutely require it. In this case I would use the credit card at the time of the need and after the event was over I would 'regroup' and determine the best plan for paying off the card. Depending on the amount I might decide to pay it back over a few months, or I might determine it would be best to use cash, savings, or as a last resort I would sell some silver.

I'm not saying this is best for everybody, but for me this works. It could also be said (at least in my own case) that using a credit card 'buys time', in that I'm not forced to decide which investment to tap or liquidate under duress. I can take care of whatever situation has come up, and then a bit later I can thoughtfully determine the best way to move forward.

Just my 2¢.

Re: Credit Cards and Financial Behavior- any correlation?

Anonymous — Thu, 09 Jun 2016 02:49:10 GMT

@UncleB wrote:
@bada_bing wrote:

The influence that is a bit harder to quantify is the idea that credit card limits are a suitable
replacement for an emergency fund.

+1

I agree with this completely.

Also hard to quantify is exactly what defines "emergency"?

Exactly! We have friends that think car repairs or needing a new refrigerator are emergencies, but the fact is those are expenses that should be budgeted for. For us we always budget for those types of things, keep a seperate emergency fund, and an additional income replacement fund. We could probably go 3-4 months with no income before we would have to start using our credit cards. I still might chose to use a credit card at 0% for a few months before draining my cash reserves. That is one of the reasons having good credit is so important...it gives you more options if you ever need them.

I thank my dad for teaching me the importantance of saving and sticking to a budget. I never learned anything about personal finance in school.