The ironic effects of credit card balances and credit limits on consumer spending

Credit card cue effect

International Journal of Bank Marketing ◽

10.1108/ijbm-01-2019-0010 ◽

2019 ◽

Vol 38 (2) ◽

pp. 368-383

Author(s):

King Yin Wong ◽

Michael Lynn

Keyword(s):

Credit Card ◽

Design Methodology ◽

Credit Cards ◽

Well Being ◽

Financial Security ◽

Consumer Spending ◽

Content Type ◽

Moderation Effect ◽

Show Evidence

Purpose The extant literature has mixed results regarding the credit card cue effect. Some showed that credit card cues stimulate spending, whereas others were unable to replicate the findings or found that cues discourage consumer spending. The purpose of this paper is to investigate how consumers’ sensitivity to the pain of payment affects their mental associations about credit cards and how the differences in credit card associations moderate the credit card cue effect on spending, providing a possible explanation for the mixed results in the literature. Furthermore, this paper examines the role of consumers’ perceived financial well-being, measured by their perceptions of current and future wealth and their sense of financial security, in mediating this moderation effect. Design/methodology/approach An experimental study was conducted with a sample of 337 participants to test the hypothesized model. Findings After being shown credit card cues, spendthrift participants had more spending-related thoughts and less debt-related thoughts, perceived themselves as having better financial well-being and consequently spent more than tightwad participants. Originality/value To the authors’ knowledge, this is the first study to investigate the direct link between an exposure to credit card cues and perceived financial well-being, and one of the few to show evidence of the moderating effect of consumers’ sensitivity to the pain of payment on spending when credit card cues are present. This study suggests that marketers may use credit card cues to promote consumer spending, whereas consumers, especially spendthrifts, should be aware of how credit card cues may inflate their perceived financial well-being and stimulate them to spend more.

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The easy-money effect: credit card spending and hard-work reminders

Journal of Consumer Marketing ◽

10.1108/jcm-07-2016-1868 ◽

2017 ◽

Vol 34 (7) ◽

pp. 541-551 ◽

Cited By ~ 1

Author(s):

King-Yin Wong ◽

Michael Lynn

Keyword(s):

Implicit Association Test ◽

Credit Card ◽

Design Methodology ◽

Credit Cards ◽

Association Test ◽

Hard Work ◽

Implicit Association ◽

Consumer Spending ◽

Content Type ◽

Practical Implications

Purpose This research paper aims to examine the proposed easy-money effect of credit cards, which stimulates consumers to overspend. This paper shows how such an easy-money effect can be weakened. Design/methodology/approach In Study 1, an implicit association test was conducted with a sample of 169 participants to test the proposed credit card easy-money effect. In Study 2, experimental data were collected online from 365 participants to test the effectiveness of a hard-work reminder in weakening credit cards’ easy-money effect on consumer spending. Findings The proposed credit card easy-money effect exists, with spendthrift (ST) participants associating money with hard work less in the implicit association test after being presented with a credit card cue versus neutral cue. The results from Study 2 show that ST participants spent more on their dinner than tightwad participants when shown a credit card cue. However, this effect could be weakened when STs were also reminded of their hard work by a picture accompanied with words. Practical implications This paper suggests that credit cards’ spending-stimulating effect is due to consumers’ associations between credit cards and easy money. Based on this notion, this paper suggests conditions in which credit cards will stimulate more and less spending. Originality/value This is the first research attempt to examine the credit cards’ easy-money effect and the effectiveness of reminding consumers of their hard work to mitigate credit cards’ long-established spending-stimulating effect.

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Internet, consumer spending, and credit card balance: Evidence from US consumers

Review of Financial Economics ◽

10.1016/j.rfe.2016.01.002 ◽

2016 ◽

Vol 30 ◽

pp. 11-22 ◽

Cited By ~ 9

Author(s):

Hem C. Basnet ◽

Ficawoyi Donou-Adonsou

Keyword(s):

Credit Card ◽

Consumer Spending

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The COVID-19 Inflation Weighting in Israel

The Economists Voice ◽

10.1515/ev-2021-0023 ◽

2021 ◽

Vol 0 (0) ◽

Author(s):

Jonathan Benchimol ◽

Itamar Caspi ◽

Yuval Levin

Keyword(s):

Consumer Behavior ◽

Credit Card ◽

Inflation Rate ◽

Vaccination Campaign ◽

Developed Countries ◽

Household Consumption ◽

Consumer Spending ◽

Goods And Services ◽

Inflation Bias ◽

Significant Bias

Abstract Significant shifts in the composition of consumer spending as a result of the COVID-19 crisis can complicate the interpretation of official inflation data, which are calculated by the Central Bureau of Statistics (CBS) based on a fixed basket of goods. We focus on Israel as a country that experienced three lockdowns, additional restrictions that significantly changed consumer behavior, and a successful vaccination campaign that has led to the lifting of most of these restrictions. We use credit card spending data to construct a consumption basket of goods representing the composition of household consumption during the COVID-19 period. We use this synthetic COVID-19 basket to calculate the adjusted inflation rate that should prevail during the pandemic period. We find that the differences between COVID-19-adjusted and CBS (unadjusted) inflation measures are transitory. Only the contribution of certain goods and services, particularly housing and transportation, to inflation changed significantly, especially during the first and second lockdowns. Although lockdowns and restrictions in developed countries created a significant bias in inflation weighting, the inflation bias remained unexpectedly small and transitory during the COVID-19 period in Israel.

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