The smart phone has made life easier for many of us – you can call anyone, anytime, google the answer to the debate you and your friend are having, or order food for your dog while waiting to pick up the groceries you also ordered on your phone. While there are countless positives to this advanced technology, in some ways, it has made us not so smart.
One of the great ramifications of having this type of powerful technology at our fingertips is that we take action first, think later. This phenomenon applies to that questionable Facebook status as well as our spending choices. We rarely even have to get up from the couch to get our credit cards anymore.
Netflix asks, “Are you still there?”
We should be asking, “Did you really need to buy that??”
We all love the feeling of a new purchase – but when we’re barely paying attention, 2/3 of the way through a Gilmore Girls episode, are we cheating ourselves?
Let’s think about gift giving holidays. As a kid (or now, I’m not judging), in the weeks ramping up to a special occasion, such as your birthday or Christmas, there’s a palpable sense of excitement. Sneaking a peak at the wrapped boxes, imagining what lies within. But after the day finally arrives and you open the gifts, that magic all but disappears in the blink of an eye.
Online shopping and the mindset that goes with it has all but removed that anticipation period. We buy something, feel good for a minute, and then are back looking for our next hit.
When was the last time you decided upon a big purchase, checked your budget, and then made a plan to save up?
When was the last time you saved up?
I’ve seen a shift from “save first, buy later” to “buy first, figure it out somehow, later”. This strategy is a dangerous one that can land you deep in debt. The large amount of credit card debt many Americans have is evidence of this mindset.
43.9% of Americans have credit card debt - meaning that they carry a balance month to month rather than paying their card off.1 Due to high annual percentage rates (APRs), credit card debt can quickly get out of hand. As of the week of November 4th, the average APR was 15.97%.2 Making the minimum payment on your credit card may only be paying off the interest accrued if your balance is high enough. When making a credit card purchase, it's important to only charge what you can pay off within the month.
Before you go cutting up your credit cards, there are major advantages to using a credit versus a debit card. The number one reason I would recommend using a credit card is security:
Credit cards still offer much greater protection than debit cards in most cases. As long as the customer reports the loss or theft in a timely manner, their maximum liability for purchases made after the card disappeared is $50. The Electronic Fund Transfer Act gives debit card customers the same protection from loss or theft—but only if the customer reports it within 48 hours of discovery. After 48 hours, the card user's liability rises to $500; after 60 days, there is no limit.3
As someone who has experienced fraud on both debit and credit cards, I can attest to the fact that credit card fraud is comparably easier to resolve. When fraud occurs on a debit card, the bank will typically conduct an investigation prior to returning the monies to you, which may be a while. This timeline can become problematic if the fraud was significant and it occurred on your primary bank account.
All of the potential benefits of a credit card in the world don't matter if not used responsibly. Before charging your card, take a moment to think about whether it's a necessary purchase and whether you can truly afford it. If the answer is no, it's time to make a plan to save up the money to pay for it.
Yeah, but that sounds boring!
This is where we circle back to the gift example I discussed earlier – the waiting and anticipation is a substantial part of why those occasions are so enjoyable. When we submit to our instant gratification tendencies, we’re actually denying ourselves the full experience. Making a large purchase when you have strategically saved up over a period of time is much more satisfying than the fleeting instant gratification.
Don't wake up tomorrow morning with regret, spend responsibly.
1. https://www.lexingtonlaw.com/blog/credit-cards/average-credit-card-debt-statistics.html
2. https://www.creditcards.com/credit-card-news/rate-report/
3. https://www.investopedia.com/articles/personal-finance/050214/credit-vs-debit-cards-which-better.asp
This is meant for educational purposes only. It should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. Please consult with a financial professional regarding your personal situation prior to making any financial related decisions. (11/20)