Imperfect Recall: The Impact of Composite Spending Information Disclosure on Credit Card Spending
- First Online:
- 371 Downloads
In the past 30 years, consumer credit card debt has expanded tremendously. We know that consumers willingly pay more for the same product when using credit cards versus cash, contrary to the classical rational agent model. Research suggests that it happens due to three imperfections in the classical model: imperfect self-knowledge, imperfect willpower, and imperfect recall. Traditional solutions to credit abuse address the first two imperfections; we examine the third. We propose reminding consumers, on every receipt, how much they have spent cumulatively. We test the effect of this proposal on spending via a controlled experiment. We find that printing this additional information on credit card receipts leads to a significant 9.6% reduction in overall spending compared to the status quo. We discuss the public policy implications of this finding as well as implementation issues.
KeywordsCredit card spending Consumer debt Credit abuse Imperfect recall
- Barrington, R. (2011). 2011 credit card facts & statistics—is love for plastic still fantastic? Available at http://www.indexcreditcards.com/finance/creditcardstatistics/2011-report-on-credit-card-usage-facts-statistics.html. Last Accessed: Mar 2011.
- Bénabou, R., & Tirole, J. (2001). Self-knowledge and self-regulation: an economic approach. In I. Brocas & J. D. Carrillo (Eds.), Collected essays in psychology and economics. Oxford: Oxford University Press.Google Scholar
- Crowe, A. (2009), “Just what you need: a mobile reminder to pay your credit card bill”. Available at http://www.dailyfinance.com/2009/06/03/just-what-you-need-a-mobile-reminder-to-pay-your-credit-card-bi/. Accessed 9/6/2014.
- Federal Reserve (2010). The survey of consumer payment choice. Federal Reserve Bank of Boston. Available at http://www.bos.frb.org/economic/cprc/index.htm. Last Accessed: Dec 2010.
- Federal Reserve (2013). Consumer credit—G.19. Federal Reserve Bank. Release Date: July 8, 2013. Available at http://www.federalreserve.gov/releases/g19/current/default.htm.
- GAO (2012). Financial literacy: overlap of programs suggests there may be opportunities for consolidation. Washington: United States Government Accountability Office.Google Scholar
- Greene, I. (2009). The credit CARD act: a rundown. Available at http://www.businessinsider.com/the-credit-card-act-a-rundown-2011-3. Last Accessed: Mar 2011.
- Karlen, D., McConnell, M., Sendhil, M., Zinman J. (2010). Getting to the top of the mind: how reminders increase saving. Working Paper.Google Scholar
- Khan, J., & Craig-Lees, M. (2009). Cashless transactions: perceptions of money in mobile payments. International Business & Economics Review, 1(1), 23–32.Google Scholar
- Leland, J. (2007). Debtors search for discipline through blogs. New York Times, February 18.Google Scholar
- Lester, R., Ritvo, P. T., Mills, E. J., Kariri, A., Karanja, S., Chung, M. H., Jack, W., & Habyarimana, J.et al. (2010). Effects of a mobile phone short message service on antiretroviral treatment adherence in Kenya (WelTel Kenya1): a randomized trial. The Lancet, 396(9755), 1838–1845.Google Scholar
- Lusardi, A., & Tufano P. (2009). Debt literacy, financial experiences, and overindebtedness. National Bureau of Economic Research, Working Paper 14808.Google Scholar
- Mastercard (2010). MasterCard unveils ‘next generation debit card’: Turkish bank TEB becomes first bank to offer next generation payment card with built-in display for control and security. Available at http://www.mastercard.com/us/company/en/newsroom/next_generation.html. Last accessed: July 2013.
- Meier, S., & Sprenger, C. (2010). Present-biased preferences and credit card borrowing. American Economic Journal: Applied Economics, 2(1), 193–210.Google Scholar
- Nilson Report (2010). The Nilson Report, Issue 961.Google Scholar
- Ray, D. P., & Ghahremani Y. (2013). Credit card statistics, industry facts, debt statistics. Available at http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php#source%2043. Last accessed: July 2013.
- Schor, J. (1998). The overspent American. New York: Basic Books.Google Scholar
- VISA (2010). Becoming a Visa Merchant provides outstanding benefits—for you, and for your customer. VISA USA Website. Available at http://usa.visa.com/merchants/new_acceptance/benefits/index.html. Last Accesed: April 2011.
- Wise, J. (2010). 7 Essential Steps to Mastering Temptation. Psychologytoday.com. Available at http://www.psychologytoday.come/blog/extreme-fear/201011/7-essential-steps-mastering-temptation. Last Accessed: Jan 2010.
- World Bank (2010). World Development Indicators. Available at http://data.worldbank.org/data-catalog/world-development-indicators%3Fcid%3DGPD_WDI&sa=D&usg=AFQjCNGwDItltScKqIdRHF3tGUF_WFc8ow. Last Accessed: Jan 2011.