MADISON, Wis.-A new Filene Research Institute report delves into understand the psychology behind credit and debit card usage.
In "Debit vs. Credit: How People Choose to Pay," authors Victor Stango, University of California, Davis; and Jonathan Zinman, Dartmouth College, tracked transaction-level choices consumers make between debit and credit, as well as details on consumer characteristics such as income and creditworthiness.
Study findings include: most people "single-home," using nearly all debit or credit for retail purchases; purchase characteristics, such as transaction size, influence payment choices, but there is a clear "propensity to use debit;" it is also fairly easy to classify people as "debit users" or "credit users;" debit users tend to be less creditworthy than credit users, and their credit cards have higher interest rates.
Stango and Zinman found that persistent debit card use is not fully explained by the most important economic factor that should affect the costs of debit vs. credit: carrying a credit card balance. The authors said this suggests that some consumers have behavioral or psychological motives for using debit that do not subscribe to traditional economic theories; credit users pay far less in account fees than debit users or "mixers," suggesting that those who use credit are more financially sophisticated than those who use debit; debit is a useful way of moderating overall spending, suggested by psychological theories of the debit/credit choice.
