Maybe credit cards don’t encourage spending

by Will on November 18, 2009

An interesting counterpoint to the David Ramsey “no credit” creed I linked to below:

The gold standard method for determining causality is a controlled experiment. Recently, two academics ran the only published field trial of which I am aware that randomly assigned credit card vs. cash purchase opportunities to people in a live commercial environment. Their conclusion: “Surprisingly, we find that credit cards do not increase spending.”

Tagged as: credit, Jim Manzi is Baller Status, the American Scene

Will writes from Washington, D.C. (well, Arlington, Virginia). You can reach him at willblogcorrespondence at gmail dot com.

{ 4 comments }

1 Chris Dierkes November 18, 2009 at 1:09 pm

The credit card part I think take it or leave it. But his emphasis on debt reduction I find very helpful. Debt is not an asset. I don’t know how many people I’m met around my age who talk about their unpaid off house/condo as if it were an asset. Dude, if you’re still paying every month, it’s called a deficit.

The other thing (related to that point) that he hammers home is that minimum monthly payments setup are a fraud to squeeze more interest in the long run off a person. Though that might seem like a rather elementary economic fact to some, I think that actually is a light-bulb moment for many.

2 Jay Daniel November 19, 2009 at 1:56 pm

I would like to read Manzi’s post, but The American Scene has been pretty much completely down for the last 24 hours (503 Service Temporarily Unavailable). I’m not sure how you were even able to read the article. Matt Frost needs to feed the hamsters powering the site.

3 Will November 19, 2009 at 2:01 pm

Yeah, it’s been on-and-off for a few weeks now. The actual post just links to that research paper, though.

4 ruidh November 23, 2009 at 11:38 am

I don’t know how many people I’m met around my age who talk about their unpaid off house/condo as if it were an asset.

To the extent its value exceeds the amount of the debt, it *is* an asset. Furthermore, it is a leveraged asset. You bear more risk, but you likely get a higher return over buying it outright.

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