The Psychology of Credit Cards

The credit card industry is a multi-billion dollar industry that leverages one of the least-understood powers that drive the world: money psychology. What is that? It has two parts, really. 1) People are less likely to spend real money. Even if they have enough cash to pay for something, they are more willing to pay with a credit card. 2) The psychology of credit cards causes people to spend more money and often shifts control of their finances from themselves to the credit card company. Huh.

Understanding how credit card psychology works can help you prevent spending too much and losing control to those companies that are only too delighted to have you make your every wish come true by slapping down the magic plastic. So how exactly does this psychology work?

==> Credit Cards Turn Cash into Concepts

  • Spending money on a credit card doesn’t have the same psychological effects as spending cash.
  • Research has shown that people are more likely to spend more money when they’re using a credit card than when they’re spending cash.
  • People are also less likely to remember how much they’ve spent when it’s on a credit card. People tend to underestimate their spending when they use credit cards as a rule of thumb rather than cash.
  • Why? Because a credit card operates on the concept of money, while cash feels like a tangible physical object with real value (a value we don’t want to give up).
  • The subconscious mind doesn’t instinctively understand that credit card money is valuable. Yes, consciously it’s something we understand. But it doesn’t carry the same weight as cold, hard cash.

==> The Illusion of Need

One way to look at money is accumulated power or “value.” By doing valuable work in the workplace, you’ve “accumulated” a certain amount of power or value as recognized by society. This value is presented to you in the form of a paycheck or business profits.

When you use a credit card to buy something with money you don’t yet have, you’re essentially saying that you believe you need this object so badly that you’re not willing to wait until you’ve generated the power it takes to bring that object into your life.

Instead, you’re borrowing from power you’ll create in the future. This comes at an immense cost. The cost is buried in small sounding credit payments, but the cost is huge nonetheless.

The reality is, this sense of needing an object right away is almost always an illusion. Aside from food and shelter, there’s really almost nothing you really, truly need.

Whenever someone puts a pair of Gucci shoes, a high end computer, an iPhone or an expensive date on their credit card, what’s really at work are subtle emotions. Emotions that say that spending this money will buy comfort, affection, being “cool,” etc. These are emotions that are created by expensive marketing.

When looked at objectively, most things that people put on credit cards really aren’t necessary. However, people feel like they absolutely have to have them. In the past, financial reality would have prevented them from giving in to this feeling. Credit cards, however, give people an easy “release valve” for all these emotions.

Understanding that these psychological factors are at play will give you the power to start noticing when they’re surfacing in your own life. Start to notice when you discount the value of money because it’s paper rather than cash. Notice your urges, especially when you feel like you have to buy something. “Retail therapy” is expensive! Ask yourself – do you truly need those Choos shoes or are you just lusting after them? Chances are, if you had to save up real money to buy them, you might decide you didn’t need them at all.

About Karen

Karen Karsten, CPCC, CAC, has had several business careers, in government, finance, retail and publishing. Each career was a building block that helped her create the life she has now as a coach, writer and executive director of Rich Chicks and Creative Principle of Think You Can LLC.

Her companies, Think You Can ( and Rich Chicks ( both explore the magic of prosperity and creating clarity about life values. Karen has total faith in the magic of belief. Notice how that works either way: belief of magic, magic of belief. Magic is there—in you, too. Take a moment right now and honor the magic in you.

Speak Your Mind