Got into a discussion with someone about the effectiveness of cash-back credit cards vs. cash. If a credit card company is going to give you 3% back on a purchase, isn’t that better than buying with cash and getting 0% cash back? Not at all.
You’re far more likely to spend more when using a credit card, so you’re not saving any money at all. Look at what happens when you spend 12-18% (Dun and Bradstreet report I can’t find primary source for) more when paying with credit card than cash:
CASH: $10 purchase. No “cash-back”. [Completely ignoring situations where cash gets you better deals…]
CREDIT CARD: $11.20 (lowballing the 12% number). Instead of getting water and lemon with your lunch, you went ahead and got the Pepsi. Why not? You’ve got credit… Minus 3% “cash-back”. $10.86
Now how is $10.86 cheaper than $10.00? It’s not. And that doesn’t include the risk inherent in cards (credit card companies jacking your rate up, “losing” your payment, dropping carryovers, etc.,).
What I found most interesting is that people are marginally more inclined to buy more when being exposed to credit card logos, even when paying with cash.
“Monopoly Money: The Effect of Payment Coupling and Form on Spending Behavior”
(PDF) Priya Raghubir and Joydeep Srivastava. “Journal of Experimental Psychology: Applied” 2008, Vol. 14, No. 3, 213–225
“The Realities of Spending” (PDF) (2003). Greg Davies. Argent, 2 (6), 22-27.
“Always Leave Home Without It: A Further Investigation of the Credit-Card Effect on Willingness to Pay” Marketing Letters 12:1, 5±12, 2001. DRAZEN PRELEC1 AND DUNCAN SIMESTER