Do credit cards change spending habits?

There was a time when each person had three or more credit cards. Perhaps, many still do. But I recently met two people on two different occasions, both of whom had no credit cards. In fact, both refuse to get one, even though they have well-paying jobs. This makes sense only if credit card prompts us to spend more than we would otherwise do. So, does credit card change our spending habits?

Our spending decisions are based on the activity in our brain, especially in the Nucleus Accumbens (NaCC) and the Insula. The NaCC is activated when we experience pleasure while Insula is activated when we experience pain. So we will spend only if pleasure is more than pain.

But something interesting happens inside our head depending on how we pay for our purchase. The Insula understandably gets activated when you pay by cash. Your brain, however, becomes anaesthetised when you use your credit card. That is, your Insula is not activated enough when you use your credit card. Why?

One reason could be that, unlike cash, credit card does not reduce your bank balance immediately. In other words, you do not experience the pain of parting with cash now. And what is likely to happen in the future does not truly trouble us today!

You need not look far for evidence. Consider your eating habits. The pleasure of eating greasy food today is more than the pain caused through suffering from bad health in the future. You, therefore, indulge today.

In just the same way, the pleasure of consuming a product today is more than the pain of paying for it in the future when the credit card payment falls due. You will, hence, tend to spend more using your credit card compared to paying by cash. So, the next time you fish out your credit card beware! And for those who indulge, a secured credit card with smaller amounts may be useful.

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