Spring Break
PAPER or PLASTIC?
Kellie Woodhouse
Issue date: 9/22/08 Section: News
In an era when people can just tap, swipe or flash their credit cards and instantly spend hundreds of dollars without even signing a receipt, college students are finding that living on a budget can be an especially hard task.
But business school faculty recently conducted a study and found it's easier to cut back on spending if you use cash instead of credit cards, a method some students say will probably help curb their spending enthusiasm.
Joydeep Srivastava, an associate professor at the business school, along with Priya Raghubir, a professor at New York University's business school, staged four small experiments created to test a buyer's mentality when using cash versus using a credit card.
In one experiment, college-age participants were given either a dollar or a gift certificate equivalent to one dollar. Those with the certificate could exchange it for Starburst candy or for a dollar bill; those who already had the dollar bill could either keep it or buy the Starbursts.
According to the study, the students were more likely to opt for the Starburst candy if they used the certificate, rather than cash.
"Paying by credit cards reduces the pain of paying associated with paying with cash as it is a less transparent form - you do not feel that money is actually flowing out," Srivastava wrote in an e-mail. "People may be more inclined to purchase when using a credit card and also the amount they are willing to pay is higher."
The study reports that less transparent payment modes, like credit cards, "dull the pain of paying" and are more likely associated with "free spending," while cash, which is more transparent, is associated with "thriftiness."
"When you physically see it leave your wallet, you're a little more aware of your spending," said graduate business student Cherry Kwunyeun, who said she is living on a scant budget. "If you use a credit card and it's like money comes from some invisible account … you don't have to sign anymore, you don't even have to think; just tap it and you're done."
But business school faculty recently conducted a study and found it's easier to cut back on spending if you use cash instead of credit cards, a method some students say will probably help curb their spending enthusiasm.
Joydeep Srivastava, an associate professor at the business school, along with Priya Raghubir, a professor at New York University's business school, staged four small experiments created to test a buyer's mentality when using cash versus using a credit card.
In one experiment, college-age participants were given either a dollar or a gift certificate equivalent to one dollar. Those with the certificate could exchange it for Starburst candy or for a dollar bill; those who already had the dollar bill could either keep it or buy the Starbursts.
According to the study, the students were more likely to opt for the Starburst candy if they used the certificate, rather than cash.
"Paying by credit cards reduces the pain of paying associated with paying with cash as it is a less transparent form - you do not feel that money is actually flowing out," Srivastava wrote in an e-mail. "People may be more inclined to purchase when using a credit card and also the amount they are willing to pay is higher."
The study reports that less transparent payment modes, like credit cards, "dull the pain of paying" and are more likely associated with "free spending," while cash, which is more transparent, is associated with "thriftiness."
"When you physically see it leave your wallet, you're a little more aware of your spending," said graduate business student Cherry Kwunyeun, who said she is living on a scant budget. "If you use a credit card and it's like money comes from some invisible account … you don't have to sign anymore, you don't even have to think; just tap it and you're done."
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