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The research study will be examining the effect of credit card use on the consumer spending which is a significant topic in the field of business, economics and public policy. The establishment that the use of credit cards tends encourages more spending as opposed to other means of payment may help in the provision of some rationale for regulating the use of the credit cards. Additionally, In case the credit card usage leads to the excessive spending and even personal financial hardships. Thus the regulation of the given cards could be much justified on the equal basis as the particular drug type's regulation. The study of this topic will also be instrumental in answering the questions of whether the usage of the credit cards encourages the consumers in spending more as compared to the usage of the other means of payment. Furthermore, it will be vital in the designing of different public policies regarding the modes of payment thus helping in streamlining the business sector. Additionally, the findings of the research study will be significant in the future research in topics related to the given business topic. The finding that the use of credit cards for payment promote spending due to some reasons other than the liquidity constraints would help in paving the way for some future research concerning the psychological reasons associated with it. Additionally, the documentation of the effect of credit card use would assist in the contribution of extensive research on the mental accounting through the demonstration that the level of spending differs as a function of the mode of payment.

Problem statement

The use of credit cards for payment encourages more spending due to the convenience that technology has brought about, bank incentives and improvement of credit score.

Purpose of the study

Many shopping malls and retail places have encouraged the usage of credit cards as an alternative and convenient mode of payment for various purchases that are made by the consumers. The usage of the credit cards as modes of payment has led to the altering of the buying behaviors of the different consumers due to the various reasons. The findings of this research study will help in revealing the impact of credit cards on the buying behaviors of the consumers as compared to the other modes of payment.

Study Hypothesis

Consumers who use credit cards tend to spend more than those who use cash.

Chapter 2: Literature Review

There exist various few attempts which have been made in relating the spending levels and the use of credit cards as the mode of payment. Different types of research have highlighted that there is a likelihood of credit cards encouraging the consumers spending more due to the various reasons. There exist multiple reasons behind this increased spending by the consumers who use credit cards as their mode of payment. The use of credit cards encourages spending due to some psychological reasons.

Credit cards allow consumers to splurge easily.

There are multiple types of research which have been conducted and have shown that the individuals are always willing to make payments of double prices for any given commodity whenever they are making use of some credit card as opposed to the usage of cash. The use of credit cards has some less psychological pain when swiping as compared to the physical payment by cash (Roberts & Jones, 2001). The credit cards help in anesthetizing the pain of payment and sometimes causes the tightwads to close up with the spendthrifts spending levels that are always higher. Credit cards help to anesthetize the pain of paying, and it causes tightwads to catch up with the spending levels of spendthrifts. The less friction involved when making payment makes it easier for consumers to spend more as compared to when using the other modes of payment.

Credit limits make purchases appear smaller

The credit cards tend to make the purchases made by the consumers to appear smaller thus encouraging them to spend more on some unnecessary expenditure which may not be planned. The appearance of the payments being smaller has a psychological impact on the consumers since it stimulates the spending desire. The increased willingness to spend mainly leads to overspending which might not be planned as compared to when using other modes of payment such as cash. The appearance of the purchases being smaller is sometimes facilitated by the consumer credit limits which are mostly higher as compared to the income (Rutherford & Devaney, 2009). The limits sometimes make the credit users make their comparison against the prevailing prices which in many instances seems cheaper. The high ceilings of credit might be an illustration of potential future earning, and the expected high income might make the consumers to view the prices as smaller thus stimulating their spending. Other research has suggested that the limits of credit when salient aid in making the purchases to appear much more modest hence encouraging more spending.

The convenience of using credit cards

The usage of credit cards also encourages more spending as a result of the much convenience of payment associated with its usage (Rutherford& Devaney, 2009). The consumers have much easy time making payments using credit cards as it is much easier, less time-consuming as compared to other modes payment. The convenience and other factors sometimes tempt the consumers to overspend knowing very well the payment will be quickly made and the debt will be repaid at a later debt as agreed by the credit usurer (Norum, 2008).

The improvement of the credit rating

The use of credit cards sometimes increases the chances of consumers spending more because the individual may be targeting to improve his or her credit rating. The more expenditure on purchases increases the amount of debt to be repaid by the individual cardholder. The payment of the debt helps in increasing the credit rating of the given person thus qualifying him or her to take more loans and at the same time increase the maximum value of the amount available in the credit card.

Chapter 3: Methodology

Survey Description

A study survey was designed to help in capturing the effect of the credit cards use on the purchasing behaviors and whether it encourages more spending as compared to other modes of payment like cash. The survey questions were designed to assist in highlighting the effect of the credit cards used on purchasing habits and specifically if it encourages more spending as compared to the other modes of payment such as the cash payment. The survey proposed some hypothetical questions to the study participants to help in the stimulation of their interest in the given program. The study also had segments which were based on the level of education, gender, age and income of the participants thus helping in collecting varied data that shows an accurate reflection of the society set. To ensure attaining the goal of the study, the researcher applied a quantitative analysis approach.

Data collection

The survey used primary data that was collected from sample participants. The data was collected through the use of a questionnaire that was composed of ten questions that were simple to answer thus helping in getting some quick response or feedback. The consent of the participants was sought before an email of the questionnaire was sent to him or her. All the participants were given a deadline of submitting the paper after two days upon receiving. A simple layout of the survey was additionally chosen to facilitate the more comfortable handling of the study by the selected respondents. The questionnaire was also open-ended hence assisting the participants to respond quickly and after that submit the completed survey within the stipulated time. The open-ended questions also helped to probe for more information.

Participants

The study used convenience sampling in selecting the participants of the study based on the various aspects that were under investigation. The survey used a sample of 50 participants from a population of 1000 customers. The participants were chosen from the population of customers who pay by the use of credit cards in various shopping malls in San Diego. The convenience sampling was the best sampling technique to be applied since it helped in selecting participants with the required aspects, who had some knowledge regarding credit cards and cash payment and were willing to participate in the field survey. The use of convenience sampling also helped in attaining accurate data from the participants since they had some extensive concerning the topic that was being investigated and the given modes of payment under review. The consent of the respondents was also sought before engaging in the research. In line with this, the objective, purpose, and methodology of the study were clearly explained to each participant before the start of the survey.

Chapter 4: Findings

We made 40 observations from the data collected from the participants while ten observations were dropped because the participants admitted having no broad knowledge regarding the topic hence making their observations irrelevant. The summary statistics from the use of credit cards in various shopping malls in San Diego were shown the table 1 below. The best way of determining the impact of the credit cards used on encouraging more spending was making a comparison of expenditure between the consumers which paid using credit cards and those who paid the cash mode of payment. The data analysis highlighted that the participants were likely to spend more when using a credit card as compared to those who used cash payment. Additionally, there was the tendency of an increased number of participants who spent more without knowing due to various convenience reasons.

TABLE 1-SUMMARY STATISTICS

Control group (n=15 Treatment group (n=25) Total (n=40)

% of participants using credit cards 40% 37% 22%

% using cash payment 40% 50% 10%

Average spending $10 $15 $7

Cash after payment $50 $40 $30

SUMMARY STATISTICS FOR PARTICIPANTS USING CREDIT CARDS ONLY

Average spending Cash after payment

% of participants spending more when 70% $50 $30

using credit cards

% of participants spending more 30% $30 $50

when using cash

Statistics by mode of payment

Control group Treatment group

Credit Cash Credit Cash

Average spending $20 $5 $15 $5

% Revolvers 55% 45% 40% 60%

Cash after spending $30 $50 $20 $40

The statistics above helped in analyzing the spending trends among the consumers when using the different modes of payment. The participants using the credit cards seemed to spend more as compared to those who used cash payment. The cash after spending when credit was also less as compared to when using cash payment as shown above.

Chapter 5: Summary, Conclusions, and Recommendations

Summary

The research was undertaken to prove whether the use credit cards as a mode of payment encourages more spending due the various reasons associated with it such as convenience. The review of the literature established that some studies had been conducted about similar topic thus establishing a relationship between the use of credit cards and more spending. The rejection of data from other participants due to their ignorance on whether they spent less or more is an indication that many consumers might be exploited or making more purchases unknowingly hence the need to streamline the sector.

Conclusion

The field experiment carried out helped in revealing that most of the participants had experienced more spending when using credit cards as opposed to using other payment modes. The data analysis and findings showed that there is a positive correlation between the credit card use and the experience of more spending by the consumers. The findings helped in proving the hypothesis that credit card use encourages more spending by the consumers. The existence of a positive correlation between the credit cards use and the tendency of spending more helped in making a conclusion that consumers using credit cards are always swayed to spend more unknowingly as compared to those using cash payment. The research carried out is valuable as it will help in various groups in the regulation of the use of credit by the public policy administrators and other industry players. The research is also important as it will be valuable to psychologists in educating and informing consumers on the various dangers of using consumers and how best to avoid being lured into overspending. These research findings are also valuable as it will be fundamental in analyzing and understanding of the consumer and also act as a guiding line or reference during future research on the related topic of credit cards use.

Recommendations

The government should carry out more research to conclusively determine this given topic by experimenting with a larger sample size since our study was constrained by the financial cost involved in the collection of data and other research procedures. The undertaking of the research on a more extensive sample experiment will help in making a more conclusive finding thus assisting in the designing of the public policies in the financial sector which might help in protecting the consumers from impulse buying when using the credit cards. More research should also be carried out on the consumer behavior when using other modes of payment as this will be useful in making a well-thought comparison of the impact on spending.

References

Norum, P. S. (2008). The role of time preference and credit card usage in compulsive buying behaviour. International Journal of Consumer Studies, 32(3), 269-275.

Roberts, J. A., & Jones, E. (2001). Money attitudes, credit card use, and compulsive buying among American college students. Journal of consumer affairs, 35(2), 213-240.

Runnemark, E., Hedman, J., & Xiao, X. (2015). Do consumers pay more using debit cards than cash?. Electronic Commerce Research and Applications, 14(5), 285-291.

Rutherford, L., & Devaney, S. (2009). Utilizing the theory of planned behavior to understand convenience use of credit cards.

Appendix

Field experiment Questionnaire

1 Do you have a credit card? Yes or No

2 if yes, have you used it in making payment I the last 2 months? Yes or No

3 how many times have you used it in the last 1 month? 1, 2, 3 4, 4, 5, 6

4 in all the instances you have used a credit card were you tempted to make some impulse buying? Yes or No

5Did you notice the bill was higher than expected when making payment after impulse buying? YES OR NO

7 Have ever used cash payments when buying items in a shopping mall? Yes or No

6 What is the average amount you use when making payments using credit cards?

7Was the amount paid using credit higher than when making normal cash payments?

8 Have you ever realized a change in spending when using cash and credit cards? Yes or No

9was the expenditure you made justified or planned for? Yes or No

10 if no did you feel any pain towards it? Yes or No