Benzinga | Mar 16, 2021 10:50AM EDT

The Shopper's High: MIT Study Says 'Neural Reward Mechanisms' Trigger Credit Card Spending

For years, banks and credit card companies have known customers tend to spend more money when buying with credit cards instead of cash.

A new study by MIT Sloan School of Management Professor Drazen Prelec and University of Utah Professor Sachin Banker found that excess credit card spending is actually driven in part by chemical response inside the brain.

What Happened? The new study suggests consumers overspend when using credit cards because credit cards "step on the gas" in the pleasure centers within the brain. Other researchers had previously hypothesized that credit cards simply eliminate some of the loss-related pain associated with spending hard-earned cash.

The MIT study used fMRI technology to identify brain activity at the moment subjects purchased everyday products.

"An important implication of this work is that it highlights how credit cards leverage neural reward mechanisms to facilitate greater spending," Banker said.

See Also: 4 Best Credit Cards in 2021

Why It's Important: One recent study by Dun & Bradstreet found shoppers spend an average of 12% to 18% more when using credit cards rather than cash.

The rise of digital and alternative new payment processes could have an even bigger impact on the brain, and Banker said more research is needed to understand the relationship between payment methods and consumer behavior.

"Hopefully, this research will help to encourage further work that takes new perspectives toward understanding how payment methods influence purchasing processes, particularly as people start to adopt new forms of payment," he said.

The economic shutdown actually helped many Americans eliminate or pay down credit card debt in 2020, according to WalletHub. However, credit card debt is still a big problem for many American households. Americans collectively have about $1 trillion in credit card debt, or about $8,089 per household.

Benzinga's Take: The MIT study appears to show evidence of a chemical "shopper's high" at the moment shoppers swipe their credit cards. However, that pleasurable brain activity is only a short-term sensation, while the resulting credit card debt can create an extremely difficult long-term financial problem for over-spenders.

(Photo by Josh Riemer on Unsplash)