People who overuse credit have very different beliefs about the products they buy than those who spend within their budget, new research suggests.
In a new study, University of Missouri professor Marsha Richins found those who build credit debt are often buying products in the hope those items will make them happier and notably transform their lives.

“People who are most likely to have this magical belief in what these products can do for them are the most likely to overuse credit,” Richins told LiveScience. “A good part of it stems from what they hope will happen to their lives when they buy something.”

In the end, Richins said, those transformations rarely occur, and the shoppers instead go out to buy more things, hoping for other changes.

“It seems there is this self-perpetuating, yet unfulfilling, quest for change through goods,” she said. “It leads people to really overextend themselves.”

A separate study in 2008 found credits cards cause people to spend more.

While consumer debt has been on the decline for two years, the Federal Reserve reports credit cards are still used more than 20 billion times a year in the United States for $1.9 trillion worth of transactions.

Index Credit Cards, an online site offering credit card comparisons, reports the average cardholder uses a credit card 119 times a year, for transactions averaging $88 apiece. This comes to an average annual total of about $10,500 in credit card purchases for a single cardholder.

In Richins’ research, which looked at nearly 400 people ages 22 to 60, she found four types of changes that are expected by people who overuse credit cards for purchases.

  • Transformation of the self:  The belief that a purchase will change who you are and how people perceive you. This is commonly held by young people.
  • Transformation of relationships: The expectation that a purchase will provide more or better relationships with others.
  • Hedonic transformation: The belief that a purchase will make life more fun.
  • Efficacy transformation: The expectation that purchases will make you more effective in your life. 
Personal-finance expert and author Manisha Thakor said there are times when using a credit can be a useful tool – for instance, offering an extra layer of protection, through credit card insurance, on certain purchases, or helping improve credit scores.

“It is a way to do it, if done responsibly, that doesn’t require you to live above your means,” she said of the positive effect paying a credit card bill in full and on time can have on a credit score.

Thakor believes the Credit Card Act of 2009 – designed to protect consumers from unfair or inappropriate practices of credit card companies — has helped bring many of the dangers of credit spending to the forefront.

“A lot of people have become much more aware of how expensive credit cards are,” she said.

In order to help curb credit abuse, Richins believes a revision is needed to the current financial literacy and credit counseling programs.

“We need to give people a better understanding of consumption,” she said. “Focus the financial literacy to address some of the psychological problems going on.”

Richins’ study, “Materialism, Transformation Expectations, and Spending: Implications for Credit Use,” is scheduled to be published this fall in the Journal of Public Policy and Marketing.

This article was reprinted with permission from LiveScience.

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