Freeze Funds for the Holidays

According to one source, money spent on Christmas gifts make up 3-4% of people’s total annual income. And few modern mechanisms make this yuletide spending–and overspending–easier than credit cards. The greater ease of spending is, at least in part, due to how convenient cards are to use. But there is also a psychological phenomenon called “credit card premium,” which is our willingness to spend more whilst using a credit card than we would with cash (have you ever paid $4 for a small bag of chips at a vending machine because it took cards?). A study that came out a couple years ago showed that people who spend with credit cards focus more on the benefits of their purchases (me want yummy chips!). Cash spenders focus more on costs ($4 for a small bag of chips! Are you nuts?).

Cash, perhaps because of its physical tangibility, activates emotional pain in the spender in a way credit cards don’t. Handing over cash is a physical representation of outgoing funds–something our brains can comprehend. The esoteric credit card transaction has no such representational value, thereby dulling the pain of spending and facilitating paying more than something is worth and buying things we can’t afford.

But just because you can’t feel the purchasing pain doesn’t mean the injury has not been inflicted. According to one source, the average American household carries around around $7K of interest bearing credit card debt; that same number increases to $15K if we only look at households that carry credit card debt.

If you’re one of the many Americans who struggle to keep your credit card spending in check, Trent Hamm from the Christian Science Monitor, has a few suggestions for creating barriers to use:

Freeze your card. He means this literally: put the card in a block of ice to prevent throwing it in your pocket on the way out the door.
Hide your card. Hamm put his cards in the attic, which required getting a ladder from the garage to get into. The point is to make it hard to retrieve.
Wrap your card in pictures. Hamm made an envelope for his cards with pictures of his kids, who are the inspiration for his spending moratorium. This is the emotional barrier.

Unfortunately, none of these tactics handle online credit spending, where your card is usually on file (Hamm’s article is part of a series, so maybe he has some suggestions in the coming weeks). For that, we might suggest clearing your autofill settings and purchasing as a guest rather than registering for an online store; this way, you’ll need to enter all of your information every time you visit a site…let your laziness shape better habits.

But really, most of us won’t get rid of our cards, and after we’ve melted the block of ice, and after we’ve fetched them from the attic, we’ll probably just stick them back in our pockets. So the objective should become cultivating a relationship between spending and costs. Here are a few suggestions on how to do that:

Spend cash wherever possible. Groceries, gas, coffee, etc. There are still plenty of places to use cash.
Buy quality, sometimes expensive items. At least in this author’s experience, overspending tends to happen more often with small purchases than big ones. Paradoxically, buying less, but better stuff tends to curb the spending jones for smaller, insignificant purchases.
Look at your credit card statements. Many of us (this author included) simply pay our credit card bill without looking at it. Take a sober look at where our money goes. We don’t necessarily have to do anything different, just start becoming aware of what’s happening.