The credit card industry in the United States is massive.

In 2015, there were $3 trillion worth of processed credit card transactions.  The percentage of GDP that the credit card industry represents has risen from 10% in 2000 to 15% last year.  American households are carrying nearly $1 trillion dollars worth of credit card debt.  

If you took the credit cards in circulation from the ten largest issuers and lined them up end-to-end and laid them on the equator, they would circle the globe with plenty of miles to spare.

Why are credit cards and credit card usage so prevalent? Nearly everyone I talk to about credit cards  n e v e r   e v e r  carries a credit card balance (wink wink) and they choose to use credit cards out of convenience or (this is my favorite) because of the “free rewards” or points they accumulate.

I work with millionaires on a daily basis and I have yet to come across one who made their money from their credit card points.

A very popular study from Dun & Bradstreet in 2014 found that consumers spend 12-18% more when using plastic versus physical, paper cash.  I already mentioned the nearly $1 trillion of credit card debt on the books (usually at an interest rate over 10%), so someone please explain to me the allure of credit cards?

McDonald’s reported that when customers use credit, the average bill is $7.  When using cash, people’s average bill is $4.50.  That is a 35% reduction in spending.

Other studies have found that the reason people spend less with cash is because cash feels more “real” to the consumer.  Fascinating stuff!

People realize that when using cash they have to have the money in hand in order to make that purchase.  Because of that, the consumer focuses more on the cost of the product or service involved.

When using credit, the consumer focuses on the benefit of the purchase because the cost doesn’t feel as real when you just swipe the card and move on to the next item.

Using cash takes discipline and planning.  Using credit leaves us much more vulnerable to impulse spending.

Here is a recent example from my personal life: My family and I went to Texas this past winter, a state that has several toll roads.  When driving on toll roads in Texas, you have three options: purchase in advance a TX E-Pass for a specified period of time, pay cash at each toll booth along the way, or utilize the pay-by-mail option so that you can zoom through each toll plaza without stopping and just pay the bill when it arrives in the mail a month later.

I chose option three (partly because I didn’t research option one in advance….my fault) for the simplicity of not having to stop while driving.  I received the bill in the mail a month later and it was 48% higher than if I would have paid cash.  States with toll roads have added these “e-service” fees regularly because to us (the consumer) it doesn’t feel real enough, so we pay it, blindly.

At the gas pumps in Florida, you can walk inside and pay with cash and receive a 5-8% discount.  Or, you can pay-at-the-pump with a card and pay the listed price.  Same concept.

Are the dollar amounts significant enough to warrant a change in behavior though?  In the case of my toll roads in Texas, maybe not.  The 48% increase amounted to $12.  That was a one-time deal and therefore likely won’t break the Colby family bank.

But, if the average American family spends $55/day on its credit card, and that reflects the 18% increase in spending versus cash, those dollars add up.  Over one year, that is $3,650.  Over ten years, $36,500.  If you invested that 18% over-spending amount and earned 7% over a 30-year period, you would have accumulated an additional $373,650.  What would you have to give up to achieve that?  Probably nothing of significance and certainly nothing worth $373,650.

Those little green pieces of paper with the presidents’ faces on them are powerful.  There is a built-in financial behavior modifier attached to those bills.  IT IS CALLED SELF-CONTROL.  And that, my friends, is an excellent trait when handling money.