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Stop Getting Fooled By Credit Cards: Lessons For Work And Life

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Financial institutions that issue credit cards make a lucrative stream of profits by charging us exorbitant interest rates. A significant part of their income also comes from fees they charge merchants who accept our credit cards.

The stores don’t pass these fees – which can be close to 2% – on to us because they want us to use credit cards. But why? Wouldn’t cash work better for them and give them an easy 2% saving?

When things don’t make basic economic sense, that is a strong tell that some behavioral economic principle is at play. One that the stores have figured out to get us to part with our hard-earned money.

It turns out that people tend to buy more things when they use a credit card compared to using plain cash. And we don’t just buy a little more, we do it to an embarrassing extent – which many studies have shown [1, 2].

Much to the glee of the stores.

One component of this is quite obvious. For people who are at times strapped for cash, having a credit card allows them to make immediate purchases with the option to pay later.

But around 50% of us do pay our credit card bills in full every month. Are we still getting a good deal by not having to cough up fees every time we use our cards? Not really.

We all tend to buy more when credit cards are involved. They lack the physicality of cash. When you pay with cash, you need to count it. Then you literally have to watch your money disappear into the retailer’s cash register. But paying with a card is a quick mental activity with little immediate consequence.

Our unconscious minds do a poor job at deducting money from our mental accounts when no cash is involved. And it is our unconscious mind that makes most of the buying decisions anyway.

Now, what about the cash back and airline miles many credit cards hand out? This is essentially the reciprocity influence principle at work. The little that they give us back is cleverly marketed as a free gift to us. Our inner obligation to repay a favor subconsciously compels us to use our cards even more now. Not to mention, our conscious desire for getting additional miles or cash back. It’s the classical misdirection to distract us from the main robbery.

The scam that keeps on giving! Return 1 to 2 dollars for every 100 skimmed and make the victims still feel good.

Few of us realize that paying with a credit card influences us to buy more than we really need. Some people might even deny this. But that is the ultimate proof that they are the biggest and most oblivious suckers. This appears to be backed up by a study that showed people tend to underestimate or even forget the amount they spend when a credit card is involved [3].

How can we protect against this?

If you want to save your money, use cash instead. You will find yourself spending less over time.

However, if you are too addicted to the convenience of a credit card, you could try making a point of removing around 10-20% of the items in your cart (in-store or online) at checkout. This also counteracts other persuasive tactics that retailers use to get us to buy more than we intended.

What can this teach us in work and life?

Interactions that have a physical component are more persuasive. If you want to influence someone on an important topic or idea, you need to do it in person. Email, phone, or Skype may not cut it. Take the trouble to meet in person even if it means a business trip.

It’s a lot easier to misunderstand a proposal in an email or phone call when non-verbal cues are absent. Plus, people will find it harder to say no when you are physically in their presence.

Additional reading on how we get fooled by other scams and what to do about them can be found here:

Phishing for Phools: The Economics of Manipulation and Deception by George A. Akerlof and Richard J. Shiller, Princeton University Press, Princeton, NJ 2015.

Lastly, if you want to improve your persuasion skills so you get fooled less, this amazing reading list will help you do exactly that:

Influencing And Persuasion Reading List

Thanks for reading! Please follow me if you liked this because you may find my other advice useful too. I’m grateful you took the time to visit me here.

You can also follow me on Twitter (@DrShaunAdvice) because many smart people like you enjoy my tweets. My teaching is simple and effective. You will grow with it and your eyes will be opened to how easy it actually is to be influential in your life and at work.

I fund my expenses of hosting this site through micro-donations from my audience on Patreon. In my own little way I am hoping to teach people how to influence and improve the outcomes in their lives. Your contributions will keep me inspired to continue this work. Thanks!


  1. Feinberg, R. Credit Cards as Spending Facilitating Stimuli: A Conditioning Interpretation Journal of Consumer Research, 1986, 13 (3), 348-356.
  2. Prelec, D.; Simester, D. Always Leave Home Without It: A Further Investigation of the Credit-Card Effect on Willingness to Pay Marketing Letters, 2001, 12 (1), 5-12.
  3. Soman, D. Effects of Payment Mechanism on Spending Behavior: The Illusion of Liquidity Working Paper, College of Business and Administration, University of Colorado, Boulder, CO.

Keywords: #BehavioralEconomics #Overspending #CreditCards #Persuasion #MentalAccounting


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