Canada’s love/hate relationship with credit cards

It’s almost impossible to participate in society without plastic. Turns out, though, that Canadians are almost equally split when it comes to pulling out their credit cards, with 28 per cent trying to use their card for every single expense and 34 per cent wanting to avoid it at all costs.

That’s according to a new survey by GreedyRates.ca , a credit-card-comparison site. The survey also found that men prefer using their cards more than women.

“The fact that women seem more conservative with their money than men runs counter to the stereotype of women just wanting to use their credit cards all the time to go shopping,” says GreedyRates.ca founder Marc Felgar. “Women looked to be more hesitant to use their card than men.

“I was also very surprised that low interest rates were chosen as number-one card feature overall,” Felgar adds. “This seems to contradict the general migration towards rewards as a credit-card feature of choice. But of course this would come as no surprise to the millions of Canadians who collectively carry over $85 billion in credit-card debt.”

Those earning below $50,000 annually were much more skewed in favour of low interest rates, while those earning more than $50,000 favoured rewards.

“What does all of this tell us? That Canadians seem to be perfectly rational,” Felgar says. “Those earning less try to avoid using their credit card, but when they do use it, they want one with a low interest rate,” Felgar says.

When it comes to overall credit-card usage, aside from the almost-even split when it comes people never wanting to use it or trying to use it for all expenses, the survey also found that 14 per cent of Canadians say they use credit when they don’t have cash on them, while 11 per cent pull out plastic when they need to borrow money and five per cent use it when they can’t use debit.

Psychology of spending

With some people loving credit and others loathing it, the psychology of spending comes into play. Spending on plastic anesthetizes the brain against the pain of payment, according to a famous study by business professors at MIT. They set up a silent auction for Boston Celtics tickets where one group bid with cash and one group bid with credit. The credit card group offered nearly twice as much for the tickets.

“Framing hypothetical purchases as credit card payments may significantly increase likelihood of purchase and willingness to pay,” the researchers wrote in a study they called “Always Leave Home Without It”.

According to Drazen Prelec, associate professor of marketing at the Sloan School of Management, credit cards are insidious because they disconnect consumption, which is pleasant, from payment, which is painful. “The moral tax gets blurred with credit cards,” Prelec said in the newsletter MIT Spectrum. “When you’re consuming, you’re not thinking about the payments, and when you’re paying, you don’t know what you’re paying for.

“When the credit card bill arrives, people find paying it extremely unpleasant – worse than paying parking tickets,” he said, adding that debit cards are popular largely because of the unpleasant nature of credit-card bills. “There’s no good reason to prefer debit cards over credit cards, unless we have learned to dread the credit card bill.”

Most debit cards still carry a credit card logo, because it’s an inducement to spend. “If you put a credit card logo on the cover of a mail order catalog, you’ll increase sales significantly,” Prelec said. “Apparently consumers get excited just seeing the logo. It’s like waving a hamburger in front of a hungry person.”