A credit card transaction is such an easy way to spend money. Just swipe, buy, and deal with the credit card bill in a month or so. But do you ever think about how much more money you spend when using credit vs. debit, or do credit cards encourage extra spending? Read on to find out everything you need to know about cash vs. credit card spending.
5 Quick Credit Card Spending Statistics
- The average value of a cash transaction is $22, compared to the average value of a credit card transaction at $57.¹
- Credit cards as a form of payment have increased since 2016, increasing from 24% of payments in 2019 to 27% of payments in 2020.²
- It is estimated that in 2022, contactless mobile payments will be accessed by almost a third of U.S. smartphone users, up from 25.3% in 2018.³
- Digital wallets saw an increase of 20.4% in 2020.⁴
- As of 2021, the average American family holds over $5,000 in credit card debt.⁵
How Much More Do Americans Spend With Credit vs. Cash?
Credit cards have always been a popular form of payment. The idea of buying something now and paying later can be very appealing and might encourage consumers to spend more money. According to a report done by The Federal Reserve Bank of Boston, the average value of a cash transaction is $22, and that number more than doubles when talking about credit card transactions. The average credit card transaction is $57.
A study done by the Sloan School of Management at MIT asked participants how much would they pay for tickets to a sporting event if they were to pay in cash or credit. They told half the participants that they would pay for the tickets in cash and the other half that they would pay with a credit card. Participants who were told they would pay with a credit card were willing to pay more than twice as much on average as those who were told they would pay with cash.
Why Do Americans Spend More When Using Credit Cards?
We all know spending with credit is easier than spending with cash, but why exactly do Americans spend more when using credit cards vs. cash? There is no real science behind this, but here is one theory.
According to Psychology Today, the idea of “coupling” could be an explanation of spending habits on credit cards. When you use a credit card, there’s a break between making a purchase and paying for the purchase, so there is a lack of coupling. Psychology Today says, “It’s this lack of coupling that can make using the ‘download’ button on iTunes, shelling out tokens at casinos, or paying with credit cards seem painless. All of these methods of payment feel just one step away from not paying for something at all. In a sense, the combination of credit (which itself is an abstract concept) and payment that comes at a much later point in time may act as a numbing balm for the pain that is normally associated with spending money.”
Has Credit Card Usage Increased?
Credit cards as a form of payment have increased since 2016, increasing from 24% of payments in 2019 to 27% of payments in 2020. According to the 2021 Findings From the Diary of Consumer Payment Choice, a survey done by the Federal Reserve, cash’s share of all payments decreased by 7% in 2020. This could be due to the pandemic and shoppers doing most of their shopping online or using credit cards and mobile wallets as a way to have less contact with others.
According to PYMNTS.com’s January 2021 Online Security And The Debit-Credit Divide survey, 44% of consumers who use debit cards shifted to other payment methods while the remainder has not adopted payment alternatives. The largest share of these shifters, 18%, now favors credit cards while 16% use PayPal and another 16% tap digital wallets. Credit cards remain the most popular way to pay online, cited by more than 4 in 10 consumers surveyed.
Although credit card transactions are becoming more popular, cash is not a thing of the past just yet. Cash use still accounted for 19% of all payments in 2020.² But as technology grows, so does the convenience of paying with credit cards on digital wallet apps like Apple Pay and Google Pay.
Have Digital Wallets Impacted How We Spend?
As if the convenience of paying with a credit card couldn’t get any easier, it has with the introduction of digital/mobile wallets. In the PYMNTS survey, mentioned above, the survey also asked about PayPal and digital wallet use. PayPal saw a net increase of 22.3%, and mobile wallets saw an increase of 20.4% in 2020.
Americans and people all over the world are now tapping their phones for purchases, getting rid of the need for cash, or carrying your credit or debit card in your wallet. Statista estimates that in 2022, contactless mobile payments will be accessed by almost a third of U.S. smartphone users, up from 25.3% in 2018.
According to Consumer Reports, new forms of payment may do even more to dull the mental connection between spending and having less money. In research done by Priya Raghubir, Professor of Marketing at New York University, she asked people to rate on a 100-point scale how similar credit cards are to cash, with 100 representing cash. The average response: 72. When she asked about Apple Pay (digital wallet), the average was 56. The research clearly shows the feeling of spending cash is not the same as the feeling of spending with a digital wallet, similar to paying with a credit card, enticing people to spend more with the tap of their phone.
Credit Card Debt in America
Credit cards are an easy scapegoat when overspending occurs and might actually be the right source to blame. As of 2021, the average American holds over $5,000 in credit card debt.⁵
According to Nature.com’s Neural Mechanisms of Credit Card Spending report, studies show that shoppers with credit cards are willing to spend more on items, check out with bigger baskets, focus on and remember more product benefits rather than costs, and make more indulgent and unplanned purchase choices.
Whether you want to believe it or not, credit cards have made it easier and quicker for Americans and people all over the world to spend money. As credit card usage increases and digital wallets become more widely available, we could see the amount of money spent during a credit card transaction vs. cash increase even more than now.
It’s always a good idea to keep an eye on your credit card bills, don’t spend money you can’t pay off, and pay off your balance monthly to avoid hefty interest charges. We also have more tips on dealing with credit spending and debt.
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