Nick Clements confirmed for me what I have long believed.
The financial services industry makes us overspend.
Granted, it's our choice whether to whip out that credit card or use cash. But the companies make it tempting with reward points, cash back and the like.
"Credit cards make it easy to shop without thinking," said Clements, founder of New York-based MagnifyMoney, a personal finance website. "If you don't have a budget, it is incredibly easy to spend just a bit more than you should. Countless studies show that spending with plastic means that we spend more. And we don't just spend more money in absolute terms. We will actually pay more for the same item.
"One of the more famous studies showed that, in some cases, people were willing to pay double for an item when they used a credit card. When we pull plastic out of our wallet, we are no longer savvy shoppers. Instead, we give in to the temptation of the moment and build up a debt over time as a result. Spending $50 that we can't afford every week can easily turn into $10,000 of debt within four years."
Clements should know about this. He spent almost 15 years in banking in Europe, Latin America and the U.S. He ran Barclaycard, the largest consumer credit card business in the United Kingdom.
He said there are three reasons credit cards get us to spend more than we should:
The credit limit is usually a multiple of our monthly income. "With that high credit limit, it is easy to spend too much."