Want to spend less? Ditch your credit card and don't shop when sad

As the recession bites, Newsweek magazine has a timely article on some of the brain processes underlying consumer decision making. The author Begley particularly emphasises research showing that people tend to be willing to spend more when they pay by credit card rather than cash:

"When you hand over a stack of 20s, you have less of something tangible: your billfold is lighter. That causes a brain region [the insula] that registers negative feelings (bad smells, unfairness, social ostracism) to become more active than when you charge a purchase. Humans have evolved to pay attention to the messages the insula sends, with the result that it hurts to pay cash. There is no such feeling of loss when you pay with plastic, so the insula doesn't react. Credit cards anesthetize the otherwise painful act of paying".

Begley goes on to quote this study (pdf) by MIT researchers in which participants were willing to pay significantly more for football game tickets or a restaurant voucher when using a credit card compared with cash.

Begley also highlights research by Cynthia Cryder and colleagues, showing that people are willing to pay more for products when they are feeling sad - perhaps because acquiring more stuff helps them feel better about themselves.

In short, it seems that if you want to reduce your spending this holiday season, you're best off carrying cash, not cards, and staying indoors if you're feeling blue.

Link to Newsweek article Inside the Shopping Brain by Sharon Begley.
Link to study showing people spend more when paying by credit card (pdf).
Link to study showing people spend more when miserable (pdf).

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