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Credit Card Spending Studies (2018 Report): Why You Spend More When You Pay With a Credit Card

Research has shown that people are willing to spend more—as much as 83% in some cases—when paying with a credit card instead of cash. While there are benefits to paying with a credit card, they do not explain this enormous increase in willingness to pay. We surveyed a variety of studies about credit card spending and present some of the most widely accepted explanations as presented by leading experts.

How Much More Do Consumers Spend With a Credit Card Than Cash?

When asked to bid on tickets for Celtics and Red Sox games and banners for these teams, business students were willing to pay 83% more when paying with a credit card than when paying with cash. Because the bids were made in a sealed auction and the participants were given no information about the market value of the items, they were not influenced by the valuation of others or by a predetermined ticket value. This means that the difference in the bid amount between the cash and credit card groups is directly affected by their subconcious willingness to pay more when using that payment method. This phenomenon is known as the credit card premium.

Perceived Value of Items: Cash vs Credit Card

The increased spending when credit cards are used over cash also extends to tipping at restaurants. With credit cards, customers have been shown to leave tips that are 13% larger than their counterparts who paid with cash. While this is significantly less than the 83% increase, it still reinforces a trend of increased payment with credit cards. The table below—which represent data from a key study on the topic—display the increase in tip amount for checks paid with credit card versus those paid with cash.

Median Check SizeCash Tip AmountCredit Card Tip Amount
$1713.9%17.8%
$2315.6%17.1%
$3114.9%15.8%
$4715.4%17.1%

Even the presence of a credit card logo has an effect on how we value objects when we make decisions about purchases. Consumers have been shown to be willing to pay an average of 10% more when credit card logos are present than when there's no logo present. One possible explanation for this is that we are preconditioned to have positive associations with spending and credit cards. This makes sense when you consider that credit cards heavily market their rewards.

The effect of payment method on willingness to pay doesn't just apply to credit cards. It has been shown that consumers also spend more when they pay with "scrip" (a type of in-store currency) and gift cards as well. Consumers who paid with scrip spent, on average, 15% more than those who paid in cash. Similarly, consumers who were given gift cards instead of cash were shown to be more likely to spend rather than save.

Of the studies that we surveyed, all but one reported increased spending when credit cards were used instead of cash. However, the findings of this study should be treated with caution, as the researchers used methods that specifically drew attention to the credit card versus cash decision. This increases the likelihood that the participants will be cognizant of their spending habits and therefore less likely to spend regardless of payment method. Furthermore, the timing of the research coincided with the Great Recession (2007‒2009), during which consumers might be wary of credit card spending.

Why Do We Spend More With Credit Cards?

While there are benefits to paying with a credit card—such as earning rewards and building credit—they do not account for the enormous premium that consumers seem willing to pay. While there are no definitive answers that explain this phenomenon, there are several popular theories that have emerged over the years.

Credit Card Shoppers Focus More on Benefits Than Costs

There has been evidence that shows when consumers use credit cards, they tend to focus more on the product's benefits than its costs. Credit card users were 28% better at recalling aspects related to a product's benefits than cash users. Conversely, cash users were 82% better at recalling aspects related to an items cost than credit card users.

Difference in Ability to Recall Aspects Related to Cost and Benefits by Payment Method

Group Purchases Seem Smaller

Some have suggested that the reason for consumers' willingness to pay so much more for identical products or services is psychological. One theory is that when purchases are grouped together—on a credit card statement, for example—the individual transactions are perceived as smaller. For example, a $50 purchase on a $600 credit card statement does not seem as large as it does on its own.

This is related to a psychological concept called coupling, which is essentially how much the purchase of a product is connected to the actual payment. In terms of credit card spending, the fact that you don't have to pay for purchases until your credit card bill is due distances the pain of spending money when you are weighing the benefits of a transaction.

We Don't Notice We're Making a Payment as Much With Credit Cards

Credit card payments may not be as noticeable as paying with cash. This theory is displayed in an examination of manual versus electronic toll fare collection. Electronic toll booths are correlated with higher tolls—sometimes as much as 20% to 40%—than manual toll booths.

Drivers who don't have to manually pay tolls may not notice the increase as much and therefore give transit authorities more leeway to increase rates. This is known as the "salience theory," and it also applies to credit card purchases. When paying with a credit card, you don't notice the cost as much as when you pay with cash, and are therefore you're willing to pay more.

People Are Using Credit Cards Now More Than Ever

Credit card use has been on the rise in recent years, with reported growth of 10.2% in the number of card payments from 2015 to 2016. A contributing factor for the increase in credit card transactions is the increase in online shopping, with 1.6 billion more remote credit card transactions made with credit cards in 2016 than in 2015. This is important because remote transactions also lessen the pain of purchases similarly to the way that credit card payments do.

With such an increase in credit card and remote transactions, it's important for consumers to be aware of how their payment choice might affect their spending. This doesn't mean you shouldn't use a credit card. However, it does mean consumers should make an effort to be especially cognizant of their choices when using a credit card or shopping online.

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