This is a concept deeper than meets the eye, so this is just an appetizer for your thoughts. There is a spectrum of manifestations from spending money. On the far right, swiping a credit card to secure purchase releases a massive amount of dopamine. These are your shopaholics and impulse spenders. I, however, am the weird guy on the other end of the spectrum who's spending manifests with heart palpitations despite having saved up enough cash to make the purchase. I'm not sure when this aversion to spending became the case, but it sure keeps my spending in check.

Many studies note physiological differences when a purchase is made with a credit card compared to cash. Using plastic does not elicit any type of negative brain response. Before chip readers, a consumer would hand the cashier a credit card which would be swiped at the register. The cashier would hand over the item PLUS the credit card. It is as though in exchange was not made because the consumer left the store with more than they entered with. Paying with cash on the other hand elicits a pain stimulus. The consumer hands the cashier a $50 bill and leaves the store with the item and only $12. This transaction leaves a mark. This transaction leaves the consumer with 38 fewer dollars in their wallet. This transaction emotionally hurts.

Credit is so easy to use. Nearly frictionless. Companies go out of their way to concurrently simplify the transaction process and provide incentives. Credit card technology now utilizes chip readers and tap-to-pay. Most cell phones can act as a tap-to-pay method. Online retailers now have a one-click checkout. Each of these payment methods reduces friction and increases consumer spending. The spending increase is not insignificant. Transaction amounts increase up to 70% with small purchases increasing to the greatest degree. Credit card companies know 6 in 10 people carry a balance on their card. The 25% interest more than makes up for any incentives. I am not saying that everyone should use cash for every purchase, but if spending comes easily, it may be worth a try.

Until my mid 20s I paid for almost everything in cash. I maximized spending friction. To accomplish this, I would go to the bank and withdraw say… $500 to cover my expenses for the next couple weeks. Yeah, simple times. I would ask the bank teller for five Franklins. One would go on my wallet and four would remain in the envelope for future expenses. There were multiple occasions in which I thought twice about a purchase just because I would have to break a $100 bill. Other times, retailers would act as friction. On one occasion I went to a pre-made pizza parlor to purchase a $5 pepperoni pie. As I pulled out a $100 bill, the cashier informed me that they do not take $100 bills. Fortunately for me, I was carrying a backup $50 bill in my wallet. Just as soon as President Grant hits the counter, the cashier informs me they do not accept bills greater than $20. I asked the young fella if he would make an exception as those are the only two bills I have with me. And to my disappointment, my request was not granted, and I left empty handed. In the end, my wallet and arteries thank my cash-only policy.

Do I restrict myself to cash today? The answer is no. I use a mix of cash and credit. My spending habits are so ingrained that unnecessary discretional spending is very rare. Impulse shopping is nonexistent. To this day, discretionary spending manifests with physical discomfort. Fortunately, my better half balances out my Dutch spending habits. What a team we make!

Let’s hear some “pro credit card” points. Credit is not inherently bad. It simply makes spending money easier. Online purchases are just not happening with cash. A low-limit card is good here in the chance the website is compromised. Credit cards have reasonable safety features if a fraudulent charge is noted. Customer service works in there favor. For the longest time, airline miles were the best perk for most cards followed by cash back. Airline miles are great if you plan on flying somewhere, but worthless if flying is not up your alley. Miles don’t expire and can typically be used for hotels and rental cars too. Now most cards offer discounts at major retailors, which can be a plus if you were going to spend money there anyway. This comes back to the unnecessary spending topic. Lastly, if you use a credit card, pay it off each month. I am far from savvy when it comes to saying use X card for dining out, Y card for travel, and Z card for home renovations to maximize points and cash back. Sounds like a topic for a future blog post.