Credit Cards exploit a flaw in the brain

[elfs]

"Whenever my will to live gets too strong, I read Peter Watts." Thus wrote james_nicoll several months ago while commenting on the book Blindsight. I've been re-reading Blindsight and man, that is truly one of the most depressing, best-written first-contact novels I've ever read, it truly sends shivers up my spine every time I read it.

Because what Blindsight is mostly about is the jury-rigged all-sorta-moving-in-the-same-direction collection of just barely functioning mental parts that is human consciousness, about all the funny hacks and gaps and holes in our consciousness that exist to be exploited or avoided.

I thought of Blindsight and Siri Keeton, the main character, today when Jonah Lehrer wrote:

one of the reasons credit cards are such a popular form of debt is that they take advantage of some innate flaws in the brain. When we buy something with cash, the purchase involves an actual loss - our wallet is literally lighter. Credit cards, however, make the transaction abstract, so that we don't really feel the downside of spending money. Brain imaging experiments suggest that paying with credit cards actually reduces activity in the insula, a brain region associated with negative feelings. As George Loewenstein, a neuroeconomist at Carnegie-Mellon says, "The nature of credit cards ensures that your brain is anaesthetized against the pain of payment." Spending money doesn't feel bad, so you spend more money.

Now, credit cards have some other incentives that justify their use: if you're willing to trade your privacy to corporations for the convenience of your own tracking, you also get the government's promise that you won't be on the hook for more than the first fifty bucks if someone steals your wallet. Which, by the way, allows you to justify using the credit card, and racking up credit charges, instead of using cash.

Which makes me wonder if I should switch to using only cash under almost all circumstances. Or find some way to make using credit hurt. Because, the funny thing is, Omaha insists that I take every receipt, carry it with me, and enter it into our household accounting software. And that's the only pain I face, but it's a pain suffered by someone else, the Elf of next week. I wonder how I could make it more immanent.

I wonder if it would even matter.

Original paper: Neural Predictors of Purchase.

Comments

[codeamazon.livejournal.com]

Put the proverbial rubber band around your wrist and snap it every time you use the card? You know...the one used to quit smoking or whatever?

:)

Or less draconian, keep a bottle of quarters on your desk and every time you use the card, move a quarter for every $25 you spent so you have immediate visual feedback similar to the 'lighter wallet'. (Which probably has nothing to do with being lighter, since you may get more bills in change than you spent. I suspect it has everything to do with a visual cue. I don't HAVE to know how much I just signed for -- and horrifyingly sometimes I walk out of Costco juggling a kid and a basket and have to check later because I *DON'T* know.

Another option would be that you NEVER buy anything optional on credit, and you always buy the rest on credit, budgeting aside enough for 'the rest'.

Also, you missed the biggest incentive for credit cards -- many of them give you something back. We get a nice fat check from AmEx once a year. We reach for that card for things like gas (we also get $0.03 back on the gas Right Here Right Now.)

[taerin.livejournal.com]

The main reason I use a credit card instead of cash is that there's a financial benefit to doing so.

My primary card is an Amazon Visa, which earns me a $25 gift certificate every time I rack up enough points. I save them throughout the year for purchasing Christmas presents, which helps a lot considering all the various expenses that pop up during the holidays.

There's no benefit to using cash, when I do this kind of comparison.

(I should mention, however, that I never carry a balance on any of my credit cards. If I can't pay it off at the end of the month, I don't spend the money. This means it's not costing me anything to earn those gift certs.)

[shadowfey.livejournal.com]

This is exactly what I do.

[elfs.livejournal.com]

It's not in the credit company's interest to tell you what your balance is with each payment. I wonder if there's a way to get that information quickly.

[jenk]

My company has it online.

[taerin.livejournal.com]

We track everything in Quicken, so I can get a report of where my spending vs the budget is at any particular time. To me, that's easier than checking an online running total that may or may not be up to date.

[rhonan.livejournal.com]

Squirt lemon juice in your eye whenever you buy something with the credit card? Or perhaps rub menthol on some tender bits as an act of financial contrition?

[(Anonymous)]

It's funny, but I have the opposite problem. When I'm paying for something with a credit (well, debit) card, I have a mental image of watching my balance decrease on my online banking site -- there will be immediate consequences to the purchase. But if I pay with cash, that doesn't count because the money was "already there" in my pocket. I'm conditioned to think of my checking account balance as my pool of available money, and any cash I happen to have in my pocket is a bonus that exists separately from it.

I suppose it's the same problem as the one you describe, really, except I've managed to get it backwards somehow.

Anyway, just don't become one of those people who stands in line in front of me at the grocery store counting out pennies for 15 minutes.

Anonymous Blog Reader #127

[jenk]

I had a similar issue in that we go over the check register & credit card statement in detail each month, so each item get scrutinized. Cash is "mad money" — we know it's gone, but where is known only to the spender.

I soured on debit cards when a merchant accidentally ran my card twice. Yes, they credited it as soon as we pointed out the error, but still, only I should be able to make a mistake that can cause an overdraft. I've used debit cards a lot less since then.

Debit Cards

[cadetstar.livejournal.com]

I have the same issue. My checking account is my "active" budget that I spend everything out of (bills, rent, food, etc...). Any money in my pocket is used for vending machines and small purchases.

[lisakit.livejournal.com]

Yah know, I forgot about that aspect of the debit card.

I get the same thing. It's the bank account balance that matters, not the cash on hand. Partly, I think, because the bank will do dire things, like charge overdraft fees, if you screw up where with cash you simply don't get what you want.

[abostick59.livejournal.com]

I wonder what that says about making payments by writing checks?

(If I start with five $100 bills in my money clip and use it to make a smallish purchase, say, $11.21 worth of groceries, give away piece of paper and receive eight more, plus seven coins, in return. My money clip tends to stay fairly fat until the better part of the money I started with is spent.)

[blaisepascal]

A friend of mine (who has no credit problems, and never has, the bastard) uses his PDA for this. He runs Pocket Quicken on his Palm and immediately after every transaction he enters the receipt into his records -- or while the transaction is being processed by the clerk. If the pain you (or, rather, the Elf of next week) face is sufficient, then this could work to make it more immanent.

Another option would be to get a wallet with two compartments for cash. Load it up with Monopoly money equivalent to your budgeted amount, and when you spend something on the card, physically move the fake bills from one compartment to the other.

[lisakit.livejournal.com]

I seem to feel it the same. But then, I use a debit card, not a credit card. Maybe switching to a debit card that functions like a credit card (except that it immediately deplete's your account) would help? I carry a check book too so I can keep track between purchases though sometimes I stack up 3 or 4 receipts with a running total in my head.

But yah, a debit card makes it just as immediate as cash for me.

[edichka2.livejournal.com]

"neuroeconomist" -- !

There is such a profession?

- E

[elfs.livejournal.com]

There is now, apparently. Welcome to the 21st Century.