In the context of her commentary on the Federal Reserve's proposed rules to prohibit certain unfair credit card practices, Washington Post columnist Michelle Singletary referred to all credit card users as "suckers--that is, losers." Singletary compared credit card users to gamblers in Las Vegas, and thus explained that even when you think you can "play and win," "the odds are never in your favor." As a result, she noted that even if the proposed rules eliminate some problematic credit card practices, the issues involved with using plastic will persist. In Singletary's view, therefore, there is simply no way to actually "win" the credit card game--hence the loser label.
Singletary's comments sparked a lot of reaction from the many credit card users unhappy with being labeled a sucker. Potentially the biggest objectors were those who pay off their balances in full every month, sometimes accumulating "reward points" that could lead to free trips or other benefits. These card users objected to being classified as "chumps" and lumped together with the credit card users who carried over their balances or made late payments and thus got stuck with high fees or periodic rate increases.
But in an article today Singletary defended her characterization of all credit card users as suckers, including those who pay off their balances every month. Indeed, she pointed out that according to several studies, credit card usage alters people's spending habits. Thus, for example, not only do people tend to spend more money when they use a credit card instead of cash, but people also are willing to pay more for the things that they purchase. Hence, according to Singletary, an MIT Study found that people "were willing to pay up to 100% more when they paid with a credit card instead of a check or cash." While the notion that relying on a credit card could lead to more spending may seem a bit intuitive, one researcher pointed out that such a notion actually contradicts "standard economic theory, which argues that the method of payment should have no effect on spending." Thus, even when you pay off your balance every month, it is likely that you spent more than you would have if you'd used cash.
Apparently, people who pay off their credit card balance every month tend to be more financially literate. So it's little wonder that they'd resist being classified as a sucker. People's tendency to resist the sucker label also may be reinforced by current marketing related to credit cards. Like the commercial where long lines of people use their credit cards to the beat of cheerful and "hip" music only to be rudely disrupted by the person who dares pay by cash or check. In the end, regardless of how one defines it, it appears that using credit cards is costly even for those who thought they were using their credit card responsibly.
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8345157d569e200e55229e4148833
Links to weblogs that reference Credit Card Users and Suckers:
1. Posted by Michael Risch on May 16, 2008 @ 5:50 | Permalink
Even if it is true that you pay more (and it is), there are tons of reasons to use a credit card, especially if you do not have un-ending cash:
1. If you frequently have to make purchases for your employer and get reimbursed, your cash isn't tied up (which can happen with travel) - this is especially important if you get travel miles
2. You have way, way more protection against fraud, etc. - this is the number one reason to use a credit card for many purchases
3. You don't have to have your cash tied up for deposits (such as at rental car companies)
4. You don't have to pay for rental car insurance
5. You have a good record of where your money went each month
6. You can even out your cash outflow even if you have an expensive month
7. If you really need to use them to "borrow" the money, they are not tied up by collateral
8. If you use promotional rates, you can borrow for much less than any other type of loan - I completed $35K of home renovations on two credit cards at 1.9% and 2.9% respectively
9. If you use a "same as cash plan" you can spread out your payments with no interest at all (but you have to be careful, of course)
10. You get a much bigger credit line than your bank will give you for a line of credit in case you have an emergency
These may not be the only reasons, but they seem like reasonable reasons to not be a "sucker."
2. Posted by Business Credit Card on May 16, 2008 @ 8:41 | Permalink
Michael Risch great opinion. I agree with you.
3. Posted by Christine on May 16, 2008 @ 8:45 | Permalink
I consider myself a financially literate person, but I have totally been suckered by credit card use. Although I always eschew the retail store credit cards, once I did decide to get one for a popular children's wear chain because I would get 10% off all my purchases, plus an extra 10% off a few times throughout the year. Except for the fact that the billing cycle was about 5 minutes, so I ended up paying a late fee TWICE because by the time I sat down to pay bills, which I do every two weeks with no problems from anyone else, the due date had already passed. So, I cut up my card that was going to save me money.
I also was foiled in my attempt to do the "same as cash" with a credit card. I bought a couch from Ethan Allen that offered same as cash for six months. (I always feel like a sucker if I go ahead and pay and lose the float, but I'll never do it again.) When the payment date came due, I went to pay over the phone with my credit card to get the travel miles. Paying over the phone would cost $14.95. Now, one might say that $14.95 is a small price to pay for the number of miles I would get, but the charge was flat no matter what the amount of the credit card charge. Yikes!
So, I understand that theoretically credit cards can be used for some very savvy leveraging, discounts, rewards and other purposes, but I keep getting caught in the booby traps along the way. My name is Christy and I'm a credit card sucker.
4. Posted by DW on May 16, 2008 @ 9:44 | Permalink
I had never really thought about the "cost" of being willing to spend a little more on a purchase than I would otherwise spend with cash. I think that might be true in cases like grocery shopping or other "necessities", but I find that not having cash also limits my impulse spending significantly. Somehow, when I have $20 in my wallet, I am more likely the nickel and dime it away until I have no cash. What's worse, I often will not write down such expenditures because they are so small. I would have to say that in the long run, I will save more by using a credit card than I will by keeping cash in my wallet. However, I do appreciate the idea of being more careful about how much I am willing to spend when purchasing with a credit card.
5. Posted by Jake on May 16, 2008 @ 19:36 | Permalink
Risch gets it dead on the money.
On the other hand, the disappearance of cash-only express lines at the grocery store is annoying. It is very frustrating to wait in line behind two or three idiots who cannot figure out how to swipe a credit card and enter a PIN so they can access the Great Universe of Available Consumer Credit, all for the sake of purchasing some freeze-dried enchiladas or similar junk.
6. Posted by Kirk Hartley on May 20, 2008 @ 9:58 | Permalink
I pay my account in full each month so its a conveneince thing, but she may we. Even that benefit, however is now being taken since my Intuit/Citibank card account is being sold to Chase. Per snail mail notices, I am now told that my account number will change, forcing me to redo all the accounts tied to that card. Will I spend my time to put in a new number so that Chase can make money off of me?
NO *&^%$ way.
Are we suckers when we can have this inflicted on us? Maybe.
Would I like the reform legislation to block this abuse? You bet. Let them pay me a fee equal to my hourly rate for my time. Heck, better yet, why not block card issuers from selling accounts unless cutsomers AFFIRMATIVELY consent.
7. Posted by business credit cards on May 21, 2008 @ 2:35 | Permalink
credit cards is very tempting but if you don't control yourself from the things that "attracts" you, well, you know what will happens. For the business, business credit card really helps for financial issues plus we can save money through rewards points.
| Sun | Mon | Tue | Wed | Thu | Fri | Sat |
|---|---|---|---|---|---|---|
| 1 | 2 | 3 | 4 | |||
| 5 | 6 | 7 | 8 | 9 | 10 | 11 |
| 12 | 13 | 14 | 15 | 16 | 17 | 18 |
| 19 | 20 | 21 | 22 | 23 | 24 | 25 |
| 26 | 27 | 28 | 29 |
