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  • Category: Miscellaneous

    Mental Accounting won the nobel prize. Are we following it?

    A few days earlier on a thread of Credit cards (Credit Cards- Are they advisable for purchase), few of us replied that using cash helps us to control the urges of spending too much. It's true because it's one of the reasons Prof: Richard Thaler (USA) won the Nobel prize in economics 2017.

    People develop a simple code/mental account for the same source (Eg: money in hand now vs monthly income). This helps them to understand how much to spend based on the level pain of payment ( paying by cash - increased awareness of 'pain' so spend less Vs paying by card - decreased awareness of 'pain' so spend more).

    Having limited cash in hand and then buying something has an impact on our behaviour to buy or shop. If you are doing it, then great, if not you can learn more from Google and decide for yourselves
  • #611532
    Nice. Physical cash transactions will give us a feeling that we are giving away our hard earned cash. So the pain we have will advise us to limit our expenditure. if we go for card payment we will never feel the pain. We feel that we are getting it free of cost. But when in the month end when we have to make the credit card payment, we will feel the pinch.
    My real experience I want to mention. I had a colour TV. After 2 years of usage, the remote gave a problem. So one day when we, all our family members, gone for some purchases, we have taken our remote also for repair. We went to the showroom. While we are there for repair, it happened that one colour TV model attracted our attention. So we all decided to buy that TV instead of repairing the remote. This decision we might not have taken. if we don't have a credit card. After 45 days when I had to pay that bill, only we felt the pinch.
    Good post by the author.

    drrao
    always confident

  • #611543
    Yes when you happen to spend through credit card, your purchasing power is increased through various pulls in the market. For example if you have cash in hand, you may go to petrol pump for one or at the most two liters of petrol. But when you have credit cards, you tend to put the petrol full tank. That means 4 to 5 liters which is not required at all. Likewise all the spending would be more than expected. And ladies have the habit of making high purchases with credit card as there is no cash payment immediately. But in the long run the repayment would be problem which is coupled with greater interest payments.
    K Mohan
    'Idhuvum Kadandhu Pogum "
    Even this challenging situation would ease

  • #611565
    It is true that when we have cash in hand, we know our limit and will spend accordingly. Even when we see some good stuff at the shopping mall, we will refrain from purchasing it as we know we have limited amount of cash in hand and we have a whole month in front of us. We need to limit our spending so that we can meet all our needs until we get the next salary.

    But that is not the case when we have a credit card with us. We will purchase the things we like without proper control thinking that we can pay it off the next month. But that is actually increasing your debts. This practice goes on every month and finally you will face shortage of cash as half your salary will go for paying credit card dues. On the other hand there are many people who knows how to use a credit card properly and making the best out of it.

    Regards
    Chitra
    "Do not give up, things might not favour you always"

  • #611633

    Cards have made the people slightly extravagant in spending. The thread has very nicely brought out this fact. Once the cards are in the pocket we feel that there is no problem and we can pay. We sometimes even enter the big hotels where otherwise we will think twice before entering.

    These cards are very good facilities but they sometimes trap us in purchasing unnecessarily items and sometimes purchasing more amount than needed by us. The impulsive buyers will use them left and right only to find that they are not able to pay the card company in time.

    Anyway this is the cost of modernization we are paying and companies are minting money from the gullible customers.


    Knowledge is power.


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