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."
Junior landscape management major Chris Pearson has personal experience with overspending with plastic. Early in his college career he said he wasn't keeping track of his expenses and overdrafted his checking account with his check card, a mistake that turned out to be an expensive one.
"I'd go out and buy tons of trinkets," Pearson said, "and I didn't realize when it was all gone because it all adds up so fast."
Graduate student Alon Gotesman agreed that using plastic to buy is more elusive, making it easier for students to go overboard.
"As an undergrad, I knew a lot of people that had thousands of dollars in credit-card debt because it's harder to track expenses," Gotesman said.
Gotesman, however, said he uses a credit card regularly and has learned to be cognizant of what he spends, making sure to settle payments on time and avoid high interest rates. Gotesman said it's still possible to keep a budget on a credit card, but noted, "it takes more discipline."
Business professor Lemma Senbet echoed those thoughts.
"It really depends on the person: For those who are very disciplined ... I think that a credit card is a good way to go ... building up your credit history," Senbet said. "For those who are undisciplined, a credit card can become a very expensive loan."
Senbet said credit cards do have many benefits compared with hard currency - they can be used to build credit history, to shop online and to settle tabs in foreign countries. They also keep your money secure, he said.
"If you lose cash, you lose it and that's it," he said, "whereas with a credit card, you can always get it back" by canceling the card and reporting fraudulent charges.
Even Srivastava was surprised by the study's results.
"The results are somewhat surprising given that credit cards have been around for some time and people should have 'learned' by now," he said.
Whether college students have learned or not, sometimes it's just easier to limit yourself if you can see what you're spending.
"Today, I could've used my card," said sophomore letters and sciences major Lotus Yam, while toting bags from a recent shopping expedition. "But I took money out of the ATM so I could see what I was spending."
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