Mobile payments: Avoid impulse buying
NEW YORK (10/21/14)--At the dawn of a "frictionless payment" revolution, many consumer advocates are worrying these new technologies could lead to more people sliding further into debt. Already Americans struggle to control credit card debt.
One landmark 2001 study showed that people who pay with credit cards, in some situations, are likely to spend twice as much as they would have if they were paying with cash, in part because the pain of actually handing over hard-earned money for the item is delayed (The New York Times Oct. 10).
Multiple studies since then have confirmed that credit cards encourage people to spend more than they would if they were paying with cash.
With the new Apple Pay system, iPhone owners won't even need to get out a credit card to buy something in the estimated 220,000 stores currently equipped to accept this payment method: Paying will be as simple as hovering their smartphone near contactless readers. If iPhone owners are shopping online or in an app, a single touch can buy anything they see.
Credit cards transformed the way consumers spend, and new mobile-payment platforms are poised to do the same. With phones being transformed into computers, GPS locators and now payment methods, companies will have unprecedented opportunities to encourage consumers to spend (Slate Oct. 9).
These payment platforms make sense for companies like Apple and Amazon that are offering them, because it gives them access to reams of consumer spending data. But for consumers, they could encourage unprecedented levels of overspending by widening the gulf separating shoppers and the physical act of spending money.
If anything you see in real life or encounter online can be purchased in a split second, saying no will be harder than ever. So if you're excited about ditching your wallet and embracing a new smartphone-based payment platform, take precautions to avoid overspending:
- Use technology. Exert impulse control with apps that help you stick to a budget and meet savings goals. Your credit union might offer its own money management app;
- Check your balance. The reason paying with your phone is dangerous is because it takes the sting out of spending money, but a smartphone also makes seeing your balance easier than ever, too. Before making a purchase, take a second to log into your checking account and remind yourself that whatever you buy, you'll eventually have to pay for; and
- Commit to a waiting period before any major purchase. Saving and delaying a purchase cannot only help you make a better decision, but it often results in a more satisfying experience.
For related information, read "Gotta Have It? Check Impulse Spending" in the Home & Family Finance Resource Center.