Credit Cards And Credit Addiction

2024 Author: Harry Day | [email protected]. Last modified: 2023-12-17 15:43

A "hungry child" becomes an adult and remains hungry

he wants to try as much as possible,

just take, without observing the conditions, no fight for a prize

Most people with credit addiction tell the same story. One day they receive an offer to open a credit card in the mail [credit card companies sent out 5.3 billion offers in 2007, that is, every adult American received an average of 15 such letters]. In large print, the letter advertises a low introductory rate, as well as something like a refund, free airline miles, or movie tickets. And so a person decides to get himself such a card.

He doesn't use it very often at first. Then one day he forgets to withdraw cash and uses his credit card to pay for food at the supermarket. Or maybe the refrigerator breaks down and needs a little help buying a new one. For the first few months, he always manages to pay off the bill in full. Almost no one gets themselves a credit card with the thought "I will use it to buy what I cannot afford."

The main problem with credit cards is that they force people to make stupid financial decisions. With them, it is more difficult to resist temptations, and people spend money that they do not have. They buy a pair of boots or another pair of jeans, because they had a 50% discount on them. When loan debtors visit financial advisors, they ask: “Would you buy this item if you had to pay in cash? If you had to go to the ATM, feel the money in your hands, and then give it to the cashier? " More often than not, they think for a while and then say no."

The observations of financial advisors capture a very important feature of credit cards. The fact that they are made of plastic completely changes our spending model, reshaping the calculations that underlie our financial decisions. When we buy something with cash, the purchase involves a real loss - our wallet literally becomes lighter. Neuroimaging experiments show that paying with a credit card actually reduces activity in the islet of Reil, a region of the brain associated with negative feelings. Spending money doesn't feel unpleasant, so we spend even more.

Consider this experiment: Researchers set up a real, private auction to sell tickets for a Boston Celtics match. Half of the participants were warned that they would have to pay in cash, while the other half were told that they would pay with credit cards. At the end of the auction, the researchers calculated the average bids for both groups. The average credit card bid was double the cash bid! Using Visa and MasterCard, people offered much more reckless prices. They did not feel the need to contain their spending, so they ended up spending much more than they could afford.

The problem with credit cards is that they parasitize on a dangerous defect in our brains. This defect is associated with our emotions, which tend to value the immediate benefit [eg, a new pair of shoes] disproportionately high compared to future problems [high interest rates]. Our senses are excited by the prospect of immediate gratification, but they are not very capable of dealing with the long-term financial implications of such a decision. The emotional brain simply doesn't understand things like interest rates, paying off debt, or spending on a loan. As a result, areas of the brain such as the Isle of Reil do not respond to transactions involving Visa or MasterCard. Without serious resistance, impulsive desire forces us to pass the card through the reader and buy whatever we want. And we will figure out how to pay for all this later.

Jonah Lehrer, from How We Make Decisions