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Dave Says: Review the Research

Dear Dave,

I’ve heard you say that people spend more with plastic than with cash. Exactly what does that mean?

Edmund

Dear Edmund,

There have been several studies done in recent years that show people spend less money when buying with cash as opposed to swiping a credit card. One study in particular conducted by MIT and published in Carnegie Mellon magazine, indicated through the use of Magnetic Resonance Imaging (MRI) that the pain centers of the brain are activated when you spend cash. Of course, it depends on the item in question and individual spending patterns as to exactly how much less is spent, but the average is between 12 and 18 percent.

Want some more information? When McDonald’s first began accepting credit cards they conducted a focus group study in their restaurants on credit card users versus cash users. At that time, the difference was about 42 percent, meaning that a person using cash bought 42 percent less in a fast food setting than someone paying for their meal with a credit card. On other, more expensive items, the percentage generally drops. But these studies and others have proven that people spend more when using credit cards instead of cold, hard cash.

See what I mean when I say you can’t beat the credit shark at his own game? Even if you’re one of the few who pays their credit card bills on time every month, you’re still throwing your money away!

—Dave

For more financial help, please visit daveramsey.com.
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